A machine purchased a year ago for $85,000 costs more to operate than anticipate

Question

A machine purchased a year ago for $85,000 costs more to operate than anticipated. At the time of the purchase, it was expected to be used for 10 years with annual maintenance costs of $22,000 and a salvage value of $10,000. However, last year, it incurred a cost $37,000, which is expected to escalate to $38,300 this year and increase by $1,300 each year thereafter. The market value is now estimated to be $73,000–$11,000k, where k is the number of years since the machine was purchased. It is now estimated that the machine will be useful for a maximum of 4 more years. A replacement study is to be performed. Determine the values of P, n, AOC for year 4 and S of this defender.

The value of P is $  .

The value of n is  years.

The AOC for year 4 is  .

The value of S is $  .

Explanation / Answer

$38300+ (1300)k

Where k =(4)

={(38300+(1300×4))}

=$43,500

($73000-$11000k)

Since the salvage value will be after 4 years ,therefore

Value of S= (73000-(11000×4))

=$29000

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