Question

9.17 A piece of imaging equipment was purchased two years ago for $50,000 with an expected useful life of 5 years and a $5000 salvage value. Since its in- stallation performance was poor, it was upgraded for $20,000 one year ago. Increased demand now requires another upgrade for an additional $22,000 so that it can be used for 3 more years. Its new an- nual operating cost will be $27.000 with a $12,000 salvage after the 3 years. Alternatively, it can be replaced with new equipment costing $65,000, op- erating costs of $14,000 per year and an expected salvage of $23,000 after 3 years. If replaced now, the existing equipment will be sold for $7000. De- termine whether the company should keep or re- place the defender at a MARR of 10% per year.

Solve without excel:

Answer 1

EUAC of existing machine = 22000 * (A/P, 10%,3) + 27000 - 12000 * (A/F, 10%,3)

= 22000 * 0.402115 + 27000 - 12000 * 0.302115

= 32221.15

EUAC of new machine = (65000 - 7000) * (A/P, 10%,3) + 14000 - 23000 * (A/F, 10%,3)

= 58000 * 0.402115 + 14000 - 23000 * 0.302115

= 30374.03

As EUAC of new machine is less, it should be used