A small company that manufactures vibration isolation platforms is trying to decide whether it should replace the

Question:

A small company that manufactures vibration isolation platforms is trying to decide whether it should replace the current assembly system (D), which is rather labor intensive, now or 1 year from now with a system that is more automated (C). Some components of the current system can be sold immediately for $9000, but they will be worthless hereafter. The operating cost of the existing system is $192,000 per year. System C will cost $320,000 with a $50,000 salvage value after 4 years. Its operating cost will be $68,000 per year. If you are told to do a replacement analysis using an interest rate of 10% per year, which system do you recommend?

System Market value, $ AOC, $ per year Salvage value, $ Life, years D 9,000 320,000 -192,000 -68,000 50,000 4