Question
You have old equipment for a manufacturing company. The old equipment is expected to last for another five years, but you are considering buying new
You have old equipment for a manufacturing company. The old equipment is expected to last for another five years, but you are considering buying new equipment before the old wears out. The annual maintenance cost is $3000 per year for the old and $2000 for the new. The price of your new equipment is $8,000 and it is expected to run for 10 years. Your opportunity cost of capital is 11 percent. When should you buy the new equipment? If the annual cost of old is instead $3500 what would be your decision? Show all working in details and justify your reasoning?
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