Y6

Another department has selected a new piece of equipment to replace an old piece of equipment in your plant. You have been asked to estimate the economic life of the new piece of equipment and the EAC for that economic life. Additionally, you have been asked to estimate what the marginal cost is to keep the existing piece of equipment for an additional year. You have been provided the following details. Your firm's interest rate is 9%. The purchase price of the new piece of equipment (challenger) is $23,000. (a) Determine the equivalent annual cost if the new piece of equipment is kept for 1 year, 2 years, 3 years or 4 years b) What is the economic life of the new piece of equipment? (c)What is the marginal cost to keep the existing piece of equipment (defender) one additional year if the current salvage value of the existing piece of equipment is $4,000 and will decline to $1,500 at the end of one year and the annual maintenance cost is $4,000