Problem7 The after-tax annual equivalent worth of retaining a defender over four

Question

Problem7 The after-tax annual equivalent worth of retaining a defender over four years (physical life) or operating its challenger over six years (physical life) are as follows: n DefenderChallenger 1 $13,450 13,550 13,850 13,250 $12,350 13,050 13,650 13,450 13,050 12,550 2 If you need the service of either machine for only the next eight years, what is the best replacement strategy? Assume a MARR of 11% and no improvements in technology in future challengers. Note that the numbers in the table are not AEC values. They are AE values.

Explanation / Answer

Defender Year 1 2 3 4 Cash flows 13450 13550 13850 13250 MARR 11% Net present value 41,969.79 Using NPV formula in excel Challanger Year 1 2 3 4 5 6 Cash flows 12350 13,050.00 13650 13450 13050 12550 MARR 11% Net present value 55,012.78 Using NPV formula in excel Since the NPV of challanger is more maintaining them is a better choice

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