Question

Question 1. (24 points) One of the four ovens at a bakery is being considered for replacement. Its market value and maintenance costs are given in the table below for several years. A new oven costs $80,000 and this price includes a complete guarantee of the maintenance costs for the first two years, and it covers a good propo maintenance costs for years 3 and 4. The m table rtion of the arket value and maintenance costs are also summarized in the Old Overn New Oven End of MV, End Annual of Year, k Expenses (E) of Year, K MV, End Annual Year, k Expenses (E) o $20,000 1 17,000 $80,000 75,000 70,000 66,000 62,000 $9,500 9,600 14,000 9,700 So 0 1,000 3,000 3 11,000 7,000 4 9,800 Both the old and new ovens hav e similar productivities and energy costs. If the before-tax MAR service if purchased? Find the economic life of the old oven. When should the oven be replaced? a) R is 15% per year, for how many years should the new workstation be retained in b) c)

Answer 1