Question

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 ​$30 comma 000 for installation and will have an estimated economic life of 13 years and a ​$1 comma 500 MV at that time. It is estimated that annual expenses will average ​$13 comma 000 per year. The defender has a present BV of ​$6 comma 500 and a present MV of ​$5000. 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 replacement now.

Answer 1

Answer:

We have the comparison below

Explanation:

                                                     1          2           3

Expenses for the year 20000    27000      34000

PVIF at 12%                      0.89286   0.79719      0.71178

PV of expenses                 17857    21524       24201

Cumulative PV of expenses 17857 39381 63582

EOY MV                                        -1000 -1750 -2500

PV of MV                                 -893 -1395 -1779

Total PW (4000+ PV of expenses - PV of MV) 22750   44776    69361

P/A                                            0.89286 1.69005 2.40183

EUAC                                     25480 26494 28879