(25Pts.) 1. Last year a dentist made the decision to keep some existing X-ray di

Question

(25Pts.) 1. Last year a dentist made the decision to keep some existing X-ray diagnosis equipment for another year (chis year) instead of purchasing a new X-ray unit for $15,000. Using "one additional year replacement analysis" and the data below that is now known, determine whether the dentist made the correct economic decision at an investment rate of 18% per year. (Lecture 12-N4wcwAAT-W6'NG 6wue) Existing Equipment for Last Year Trade-in Value last year Market Value this year $2.0 Operating Cost last year$500 $3,000 New Equipment if bought last year $15,000 10 yTs SV after 10 yrs $1,000 AOC $3,000

Explanation / Answer

Calculation of annuity factor=

(1.18)^1 -1= 0.18

1.18/0.18*0.18= 1.18

Equivalent annual cost of new machine = 15000*1.18= 17700$ + 3000= 20700$

EUAC of old machine= 2000*1.18+ 500= 2860$

Therefore the dentist should not replace the machine.

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