A presently owned machine has the projected market value and M&O costs shown below. An outside vendor
Question:
A presently owned machine has the projected market value and M&O costs shown below. An outside vendor of services has offered to provide the service of the existing machine at a fixed price per year.
If the presently owned machine is replaced now, the cost of the fixed-price contract will be $315000 per year. If the presently owned machine is replaced at the end of first year, the contract price will be $292950 per year. If the presently owned machine is replaced at the end of second year, the contract price will be $277200 per year. If the presently owned machine is replaced at the end of third year, the contract price will be $267750 per year. If the presently owned machine is replaced at the end of fourth year, the contract price will be $264600 per year.
Determine the last calculated AW of the defender for which it should be replaced with the outside vendor using an interest rate of 10% per year. (If the defender is kept for 4 years, then enter 0 for AW)
| Retention Year | Market Value, $ | M&O Cost, $ per year |
| 0 | 630,000 | |
| 1 | 441,000 | 63,000 |
| 2 | 315,000 | 126,000 |
| 3 | 252,000 | 189,000 |
| 4 | 189,000 | 252,000 |
Expert Answer:
To determine the last calculated annual worth AW of the defender for which it should be replaced wit... View the full answer
