Question

An engineer with Calahan Technologies calculated the AW of cost values shown for a presently owned machine using estimates she obtained from the vendor and company records. A challenger has an economic service life of 7 years with an AW of $-86,000 per year Assume that all future costs remain as estimated and the challenger's technology will definitely replace that of the defender within 5 years. When should the company purchase the challenger? Retention period. Years AW of Costs Sper Year -92.000 -81000 -87,000 -89.000 -95.000 The company should purchase the challenger at year (Click to select)

Answer 1

The company should purchase the challenger at Year 3.

Explanation:

Beyond year 2, the defender has higher AW cost. Hence, it is to be replaced at EOY 2.