5 10 pts A piece of equipment was purchased two years ago fo

5. (10 pts) A piece of equipment was purchased two years ago for $40,000. At the present time, it can be sold for $22,000 and replaced by a newer model, having a purchase price of $39,500; or it can be kept in service for a maximum of one more year. The new piece of equipment, if purchased, has a useful life of not more than two years. The projected resale values and operating and maïntenance costs for the challenger is shown in the accompanying table. The before-tax MARR is 18%. Complete the data table for the challenger. Challenger Annual Expenses Cost Loss in Total Margin Cost of Capital 18% Year MV MV EUAC 0 $39,500 2 $8,500 $ 2300 26026 222,000 t )11,000 2

Solution

v

Challenger
Year	MV	Loss in MV by retaining for 1 more yr.(previous yr.MV-Current Yr. MV)	Loss of Interest on money tied up(previous MV in 2*18%)	Annual expenses	Total marginal cost	Annuity factor (1-(1.18^-n)/0.18	EUAC
1	2	3	4	5	6=3+4+5	7	6/7
0	39500
1	28000	11500	7110	8500	27110	0.847458	31990
2	22000	17500	5040	11000	33540	1.565642	21423