You are considering whether to replace an existing flow meter. The existing meter can be sold now for $50 or it can be sold in 1 year for $10. It costs $30 per year to operate and maintain. A new meter costs $400 and has a 10-year life. It could be sold for $40 at the end of its life. The new meter costs $14 per year to operate and maintain. If the cost of capital is 12% then:
What is the cost of keeping the old meter 1 more year?
What is the equivalent cost of the new meter?
Do you recommend buying the new meter now? Why?