Explain this problem and make an explanation how the problem

Explain this problem and make an explanation how the problem is solved.

Also, explain this equation. How will I type it in Excel? or calculator?

REPLACEMENT VALUE EXAMPLE An asset purchased 2 years ago for $40,000 is harder to maintain than expected. It can be sold now for $12,000 or kept for a maximum of 2 more years, in which case its operating cost will be $20,000 each year, with a salvage value of $10,000 at the end of year two.A suitable challenger will have an initial cost of $65,000, an +18,000(AF10%,5) annual cost of $15,000, and a salvage value of $18,000 after its 5 year life. Determine the RV of the defender that will render its AW equal to s that of the challenger, using an interest rate of 10% per year. Recommend a course of action. SOLUTION .-.RV(A/P 10%,2) _ 20,000 + 10,000(A/F 10%,2) ?-65,000(AR 10%5)-15,000 RV-$24,228 Thus, if market value of defender $24,228, select challenger

Solution

Problem Explanation:

An asset was purchased 2yrs ago and now currently it is difficult for the company to maintain this asset and hence the company is thinking of replacing this asset which is know as the defender. If the existing asset is continued it can last for 2 years and there would be annual maintenance cost. In the question we have to find the replacement value if we purchase new asset that will make annual worth of this asset equal to the new asset(defender)

Solution

Annual worth of defender = Annual worth of old asset

Therefore,

-Replacement value of old asset - Cost of maintenace of old asset + Present value of Salvage of old asset = -Present value of new purchase - Cost of maintenance of new asset + Present value of Salvage of old asset

Cash outflows are represented as negative sign and cash inflow as positive sign

(RV)(A/P,10%,2) - 20000 + 10000(A/F,10%,2) = -65000(A/P,10%,5)-15000+18000(A/F,10%,5)

Solving above would give us the answer of $24228

(RV)(A/P,10%,2) - 20000 + 10000(A/F,10%,2) = -65000(A/P,10%,5)-15000+18000(A/F,10%,5) Solving above would give us the answer of $24228