Check my work Because it fumes at room temperatures hydrochl

Check my work Because it fumes at room temperatures, hydrochloric acid creates a very corrosive work environment. A machine working in that environment is deteriorating quickly and can be used for only one more year, at which time it will be scrapped with no salvage value. It was purchased 3 years ago for $88,000, and its operating cost for the next year is expected to be $47,000. A more corrosion-resistant challenger will cost $194.000 with an operating cost of $47,000 per year. It is expected to have a $50.000 salvage value after its 10- year ESL. At an interest rate of 10% per year, what minimum replacement value would render the challenger attractive? eBook The minimum replacement value that would render the challenger attractive is $

Solution

(a) Annual cost of machine in present condition of next year = 47000$

In More cost incurred in machine then

The annual cost for 10 years is 47000 per year

therefore PV is 47000*6.144 = 288795

Cost of machine = 194000

Less :- Salvage value after 10th year = 50000*0.3855 = 19277

Therefore Total cost for 10 year = 436518

Therefore per year cost = 43651.80

Then the minimum replacement value that can render the challenger attractive is

= 47000 - 43651.8 = $3448.2 * 10 = 34482$

then total cost for it is 194000 + 34482 = 227482$