Help Save & Exit Submit O You received partial credit in the previous attempt Vi

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Help Save & Exit Submit O You received partial credit in the previous attempt View previous attempt 3 A machine purchased 3 years ago for $140,000 is now too slow to satisfy the demand of the customers. It can be upgraded now for $77000 or sold to a smaller company internationally for $38,000. The upgraded machine will have an annual operating cost of $83,000 per year and a $28,000 salvage value in 3 years. If upgraded, the presently owned machine will be retained for only 3 more years, then replaced with a machine to be used in the manufacture of seyeral other product lines. The replacement machine, which w serve the company now and for a maximum of 8 years, costs $213,000. ts salvage value ill be $48,000 for years 1 through 5 $20,000 after 6 years, and $10,000 thereafter. It will have an estimated operating cost of $45.000 per year. Perform an economic analysis at 12% per year using a specified year planning horizon. a) Determine if the current machine should be replaced now or 3 years from now b) Once decided, determine the equivalent AW for the next three years 10 points o4ns) a) The current machine should be replaced now b) The equivalent AW for the next three years is s[ ] Rm ADA 0.12.2017

Explanation / Answer

          AWD = -(77,000 + 38,000)(A/P,12%,3) – 83,000 + 28,000(A/F,12%,3)

= -115,000(0.41635) – 83,000 + 28,000(0.29635)

= $- 122,582.45

AWC = -213,000(A/P,12%,3) – 45,000 + 48,000(A/F,12%,3)

= -213,000(0.41635) – 45,000 + 48,000(0.29635)

= $-119,457.75

Replace the presently-owned machine now.

a) Now. b) $-119,457.75

Note: please ask in comment if need any further clarification, thank you, hope a positive feedback.

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