Question
Use compound interest factors and/or formulas to solve (NO EXCEL TABLES). Show work neatly. A currently owned machine was bought for $150,000 3 years ago,
Use compound interest factors and/or formulas to solve (NO EXCEL TABLES). Show work neatly.
A currently owned machine was bought for $150,000 3 years ago, and can now be sold for $45,000. If kept, it can be functional for 2 more years, and the operating cost will be $12,000 in year 1 and $14,000 in year 2. It can be sold for $25,000 in today's dollars at the end of year 1 and for $20,000 at the end of the 2nd year.
There's a challenger that will cost $250,000. This machine can be kept for 6 years and be sold for $35,000 at the end of that useful life. Its annual operating cost will be $15,000 per year in today's dollars.
The real interest rate (i) is 6% per year and the inflation rate (f) is 3% per year.
Perform a replacement study, and determine when the current machine (defender) needs to be replaced with the challenger.
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