Four years ago, the Attaboy Lawn Mower Company purchased a plece of equlpmant. B

Question

Four years ago, the Attaboy Lawn Mower Company purchased a plece of equlpmant. Because of Increasing malintenance costs for this equipment, a new piece of machinery is being considered for the assembly line. Suppose a g 6.500 MV is available now for the defender Perform a before-tax analysis, using a before-tax MARR of 15%, to determine which alternative to select. Assume that MV of the defender 0 five years from now. Be sure to utiize a uniform gradlent In your analysls of the dafander. Defender Challenger Original cost $10,000 Maintenance $600 in year one (or Maintenance $120 per year years ago) increasing by a uniforrm gradient of $100 per year thereafter MV at the end of life 0 Original estimated life nine Purchase cost $11,000 MV at the end of life $2,000 Estimated life five years

Explanation / Answer

Defender:

Assuming that MV=0 years from now.

EUAC = $6500(A/P,15%,5)+$1000+$100(A/G,15%,5)

= $1938.95+$1000+$172.3

= $3111.25

Challenger:

EUAC = $11000(A/P,15%,5)-$2000(A/F,15%,5)+$120

= $3281.3-$296.6+$120

= $3104.7

Replace the existing machine with the challenger.

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