A mechanical engineer designs and sells equipment that automates manual labor pr

Question

A mechanical engineer designs and sells equipment that automates manual labor processes. He is offering a machine/robot combination that will significantly reduce labor costs associated with manufacturing garage-door opener transmitters. The equipment has a first cost of $162,000, an estimated annual operating cost of $35,000, a maximum useful life of 5 years, and a $20,500 salvage value anytime it is replaced. The existing equipment was purchased 12 years ago for $65,000 and has an annual operating cost of $78,000. The currently owned equipment can be used for 2 more years after which it will be auctioned off for an expected amount of $4,500, less 28% paid to the company handling the auction. The same scenario will occur if the currently owned equipment is replaced at present. Determine the defender and challenger estimates of P, n, S, and AOC in conducting a replacement analysis today at an interest rate of 20% per year.

The P value for defender is $ .

The n value for defender is __ years

The S value for defender is $ .

The AOC value for defender is $ .

The P value for challenger is $ .

The n value for challenger is __ years.

The S value for challenger is $ .

The AOC value for challenger is $ .

Explanation / Answer

P VALUE FOR DEFENDER IS $3240 (28% REDUCED FROM $4500)

N VALUE FOR DEFENDER IS 14 YEARS

S VALUE FOR DEFENDER IS $3240 (28% REDUCED FROM $4500)

THE AOC VALUE FOR DEFENDER IS $78,000

P VALUE OF CHALLENGER IS $162,000

N VALUE OF CHALLENGER IS 5 YEARS

S VALUE OF CHALLENGER IS $17,000

AOC VALUE OF CHALLENGER IS $20,500

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