Before purchasing a car, John sought advice from his friends and researched auto reviews on the Internet. He also visited car de
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Answer:
During the first year, the marginal cost equals approximately the minimum EUAC cost. This is why the minimum cost of EUAC to maintain the defender throughout the year is $21,000. Since the minimum EUAC cost to maintain the defender the first year is less than the minimum EUAC cost to the challenger, the defender should not be substituted. This means, it is not economically feasible to make the replacement at this time.
Explanation:
According to the exercise, it is necessary to evaluate to know if it is economic to replace the defender by the challenger. For the calculation, the defender's information is: the defender's market value up to $3000. The expenses are $20000. The information regarding the challenger is: the installation cost $30000, the annual expenses $ 16000, the surrender value $ 2000, the economic life is 12 years, and the interest rate before taxes is 15%.
The minimum EUAC for the challenger is equal to:
The minimal cost is equal to: