Ten years ago Hyway Robbery, Inc. installed a conveyor system for Php 8,000. The conveyor system has been fully depreciated to a zero salvage value. The company is considering replacing the conveyor because maintenance costs have been increasing. The estimated end-of-year maintenance costs for the next five years are as follow:

YearMaintenance

1Php 1,000

2Php 1,250

3Php 1,500

4Php 1,750

5Php 2,000

At any time the cost of removal just equals the value of the scrap metal recovered from the system. The replacement the company is considering has an equivalent annual cost of Php 1,028 at its most economic life. The company has a minimum attractive rate of return (MARR) of 10%.

a. Should the conveyor be replaced now? Show the basis used for the decision.

b. Now assume the old conveyor could be sold at any time as scrap metal for $500 more than the cost of removal. All other data remain the same. Should the conveyor be replaced?