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QUESTION-1 A defender and a challenger are considered in a replacement analysis. The following decision tree includes the data where FC: first cost, AB: annual

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QUESTION-1 A defender and a challenger are considered in a replacement analysis. The following decision tree includes the data where FC: first cost, AB: annual benefit; C: Challenger and D: Defender. If annual compound interest rate is 10%, when must we replace the defender? 2 Node no branch Cash flow 1 10 FC=-45,000 $ Life=20 yrs AB= +8,500 $ 2D FC=-10,000 $ Life-5 yrs AB= +4,500 $ 2 1D FC=-10,000 $ Life-5 yrs AB= +5,500 $ 20 FC=-35,000 $ Life=15 yrs AB= +4,500 $ 3 1D FC=-10,000 $ Life=5 yrs AB= +5,000 $ 20 FC=-25,000 $ Life-10 yrs AB= +9,000 $ 4 10 FC=-20,000 $ Life-5 yrs AB= +6,000 $ 2D FC=-15,000 $ Life=5 yrs AB= +5,000 $

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