A consulting aerospace engineer at Aerospatial estimated AW values for a present
ID: 1205895 • Letter: A
Question
A consulting aerospace engineer at Aerospatial estimated AW values for a presently owned, highly accurate steel rivet inserter based on company records of similar equipment.
If Retained This
AW Value,
Number of Years
$/Year
1
–62,000
2
–50,000
3
–47,000
4
–53,000
5
–70,000
A challenger has ESL = 2 years and AWC = $-49,000 per year. If the consultant must recommend a replace/retain decision today, should the company purchase the challenger? The MARR is 15% per year.
a.Recommendation now is to replace the defender for the challenger now.
b.Recommendation now is to retain the defender for 3 years, then replace.
c.Recommendation now is to retain the defender for 4 years, then replace.
d.Do nothing for 5 years.
If Retained This
AW Value,
Number of Years
$/Year
1
–62,000
2
–50,000
3
–47,000
4
–53,000
5
–70,000
Explanation / Answer
When we see the npv, immediately replacing the defender seems to be approprtiate.
Year 0 1 2 3 4 5 Amount 0 62000 50000 47000 53000 70000 NPV 0 53913.04 37807.18 30903.26 30302.92 34802.37 187728.8 Year 0 1 2 3 4 5 Amount 0 49000 49000 49000 49000 49000 NPV 0 42608.7 37051.04 32218.3 28015.91 24361.66 164255.6Related Questions
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