Unilever is considering replacing a machine to expedite its product development process.

The financial data for the new improved machine is as follows:

Investment cost $25,000 (installed)

Estimated useful life of 5 years

Salvage value of $15,000 after the first year, decreasing at a rate of 12%each year.

Operating and maintenance costs are expected to be $5,000 in the first year increasing at a rate of 20% each year.

The financial data for the old machine (still in use) is as follows:

Estimated useful life of 5 years

Salvage value of $10,000 after the first year (from today), decreasing at a rate of 18% each year.

Current market value of $20,000

Operating and maintenance costs for the next 5 years are expected to be $10,000 in the first year increasing at a rate of 25% each year.

With a MARR of 12%, calculate the following:

a.Calculate the economic service life for each option.

b.Should the defender be replaced? If yes, when should it be replaced? Explain your answer.