An existing robot can be kept if $2,300 is spent now to upgrade it for future se

Question

An existing robot can be kept if $2,300 is spent now to upgrade it for future service requirements. Alternatively, the company can purchase a new robot to replace the old robot. The following estimates have been developed for both the defender and the challenger The company's before-tax MARRIs 25% per year Based on this information, should the existing robot be replaced right now? Assume the robot will be needed for an indefinite of time Defender Crrent MV Required upgrade Annual expenses Remaining useful life MV at end of useful life Challenger Purchase price Installation cost Annual expenses Useful life MV at end of useful life $40,000 $2,300 $51,000 $5,500 $900 9 years 6 years - $1,600 Click the icon to view the interest and annuity table for discrete compounding when the MARR is 25% per year The AW value of the defender is (Round to the nearest dollar.) The AW value of the challenger is (Round to the nearest dollar.) The existing robot be replaced right now Discrete Compounding:J-25% Single Payment Uniform Series Compound Amount Factor To Find F GivenA Compound Amount Capital Recovery Present Factor Worth Factor To Find F To Find Given P Present Worth Factor To Find P Given A Factor To Find A Given F A/F 1.0000 0.4444 0.2623 0.1734 0.1218 0.0888 0.0663 0.0504 0.0388 0.0301 To Find A Given P A/P 1.2500 0.6944 0.5123 0.4234 0.3718 0.3388 GivenF F/P 1.2500 1.5625 1.9531 2.4414 3.0518 3.8147 4.7684 5.9605 7.4506 9.3132 0.8000 0.6400 0.5120 0.4096 0.3277 0.2621 0.2097 0.1678 2.2500 3.8125 5.7656 8.2070 11.2588 15.0735 19.8419 25.8023 33.2529 0.8000 1.4400 1.9520 2.3616 2.6893 4 6 1611 3.3289 0.3004 0.2888 0.2801 0.1074 3.5705

Explanation / Answer

Annual worth method compares the equivalent uniform annual worth of both defender and challenger which is computed as the annual equivalent value of all the cash inflows and cash outflows of the alternatives at the given rate of interest per interest period.

AW = - Initial cost (A/P, i, n) – Annual operating cost + Salvage value (A/F, i, n)

AW (Defender) = - ($ 40,000 + $ 2,300) x (A/P, 25%, 6) + $ 1,200 - $ 1,600 x (A/F, 25%, 6)

                       = - $ 42,300 x 0.3388 - $ 1,200 - $ 1,600 x 0.0888

                       = - $ 14,331.24 - $ 1,200 - $ 142.08

                       = - $ 15,673.32 or - $ 15,673

AW (Challenger) = - ($ 51,000 + $ 5,500) x (A/P, 25%, 9) - $ 900 + $ 6,500 x (A/F, 25%, 9)

                      = - $ 56,500 x 0.2888 - $ 900 + $ 6,500 x 0.0388

                        = - $ 16,317.20 - $ 900 + $ 252.20

                      = - $ 17,217.20 + $ 252.20 = - $ 16,965

Annual worth of defender is - $ 15,673

Annual worth of challenger is - $ 16,965

The existing robot should not be replaced right now.

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