The AW of the current process to make motion controllers is $62,000 per year. A replacement process

Question:

The AW of the current process to make motion controllers is $–62,000 per year. A replacement process under consideration has estimates of P = $64,000, AOC = $38,000, and n = 3 years. Three engineers have given their opinions about what the salvage value of the new process may be in 3 years as $10,000, $14,500, and $18,000.

(a) Is the decision to replace the process sensitive to the salvage value estimates at a MARR of 15% per year?

(b) If sensitive, what is the lowest salvage value that justifies the replacement process?

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important... MARR
Minimum Acceptable Rate of Return (MARR), or hurdle rate is the minimum rate of return on a project a manager or company is willing to accept before starting a project, given its risk and the opportunity cost of forgoing other...

Fantastic news! We've Found the answer you've been seeking!