Problem:
Bruin Manufacturing is evaluating whether it should retain its current environmental test chamber and room or sell it immediately and purchase a new one. The relevant costs are shown below. The current one can be kept for another 5 years, given that an additional maintenance cost of $500 each year is provided each year.
Required:
Question: Determine whether the current equipment should be replaced. Use a before-tax MARR of 13% per year and the annual cost method.
Note: Explain all calculation and formulas.
|
Defender
|
Challenger
|
|
Capital investment, $ 3 years ago
|
33,000
|
0
|
|
Capital investment
|
0
|
38,000
|
|
Annual operating expenses
|
5,250
|
5,450
|
|
Annual maintenance
|
500
|
0
|
|
Current market value
|
13,000
|
0
|
|
Estimated salvage value at the end of 5 additional years
|
1,500
|
23,000
|