Question
Mary O'Leary's company ships fine wool garments from County Cork, Ireland. Five years ago she purchased some new automated packing equipment having a first cost
Mary O'Leary's company ships fine wool garments from County Cork, Ireland. Five years ago she purchased some new automated packing equipment having a first cost of $125,000. The annual costs for operating, maintenance, and insurance, as well as market value data for each year of the equipment's 10-year useful life are as follows.
Year n | Operating | Maintenance | Insurance | Market Value in Year n |
1 | 16000 | 5000 | 17000 | 80000 |
2 | 20000 | 10000 | 16000 | 78000 |
3 | 24000 | 15000 | 15000 | 76000 |
4 | 28000 | 20000 | 14000 | 74000 |
5 | 32000 | 25000 | 12000 | 72000 |
6 | 36000 | 30000 | 11000 | 70000 |
7 | 40000 | 35000 | 10000 | 68000 |
8 | 44000 | 40000 | 10000 | 66000 |
9 | 48000 | 45000 | 10000 | 64000 |
10 | 52000 | 50000 | 10000 | 61000 |
Now Mary is looking at the remaining 5 years of her investment in this equipment. What is the marginal cost for each of the remaining 5 years? When, if at all, should Mary replace this packing equipment with a new asset that has a minimum EUAC of $110,000?
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