Given the information in problem 1 for the replacement analysis, what is the sun

Question

Given the information in problem 1 for the replacement analysis, what is the sunk cost if it is the? (the sunk cost for replacement is considered the BV – current MV)

Should be $9000

Given the information in problem 1 for replacement analysis, what is the opportunity cost if the defender is not sold?

Should be $6000

Given the information in Problem 2 for replacement analysis, what is the EUAC?

Should be $6344

Problems are on the picture. Please answer all parts to the question using excel if possible, and done step by step

Replacement Introduction Review Problems (1) (Protected View) Word View Tell me what you want to do stay in Protected View. Enable Editing Replacement Introduction Review Problems 1. A machine was purchased three years ago and has a book value of $15,000. The maintenance costs on the machine have risen steadily and currently amount to about $3,000 per year. The machine could be sold for $6,000. If retained, the machine will require an immediate $1,500 overhaul to keep it in operating condition and a second overhaul will be required in year five. MARR-15%. The updated operating, overhaul cost, and market values over the next five years are as follows: Year O&M; MV -3 -2 0 1 $3,000 $4,000 2 $3,500 $3,000 3 $3,800 $1,500 4 $4,500 $1,000 5 $4,800 $0T $6,000 2. A firm is considering replacing a machine that has been used to make a certain kind of packaging material. The new, improved machine will cost $31,000 installed and will have an estimated economic life of 10 years, with a salvage value of $2,500. Operating cost are expected to be $1,000 per year throughout the service life of the machine. MARR- 12%.

Explanation / Answer

Solution 1a:

Sunk cost is the current book value of machine less current market value i.e.

$15,000 - $6,000 = $9,000

Solution 1b:

Opporturnity cost is the curent market value of machine if defender is not sold.

Therefore opportunity cost = $6,000

Solution 2:

EUAC = $35,845 / cumulative PV factor at 12% for 10 periods = $35,845 / 5.650223 = $6,344

Compuation of PV of cash outflows Particulars Period PV Factor Machine Amount Present value Cash Outflows: Initial Cost 0 1 $31,000 $31,000 Annual operating cost - Machine 1-10 5.650223 $1,000 $5,650 Salvage Value 10 0.321973 -$2,500 -$805 Present value of cash outflows (A) $35,845

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