The replacement of a planning machine is being considered by

The replacement of a planning machine is being considered by the Reardorn Furniture Company. (There is an indefinite future need for this type of machine.) The best challenger will cost $25,000 for installation and an estimated economic life of 14 years and a $2,200 MV at that time. It is estimated that annual expenses average $13,000 per year. The defender has a present BV of $6,000 and a present MV of $4000. Data for the defender for the next three years are given below. Using a before-tax interest rate of 18% per year, make a comparison to determine whether it is economical to make the replacemen will have Year MV at End of Year $-1,000 1,250 -1,500 BV at End of Expenses during Year $4,500 3,000 1,500 the Year $18,000 22,000 26,000 2 Click the icon to view the interest and annuity table for discrete compounding when i#18% per year. Fill in the table for the EUAC values for the defender for years 1-3. (Round to the nearest dollar.) Year-EUAC

Solution

Particulars Year 1 Year 2 Year 3 Expenses for the year 18000 22000 26000 PV Factor at 18% 0.847 0.718 0.609 PV of expenses 15246 15796 15834 Cumulative PV of expenses 15246 31042 46876 EOY MV -1000 -1250 -1500 PV of MV -847 -897 -913 Total PW(4000+Cumulative PV of expenses -PV of MV) 20093 35939 51789 P/A 0.847 1.57 2.17 EUAC (Total PW/PA) 23722 22891 23866