The initial cost of an air compressor is $6,000. Operation and maintenance costs tend to increase...

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The initial cost of an air compressor is $6,000. Operation and maintenance costs tend to increase year by year throughout its life as shown below. YEAR 1 2 3 4 5 6 7 OPERATION AND REPAIR COSTS $1,000 $1,100 $1,200 $1,400 $1,600 $2,200 $3,000 The salvage value is $3,600 after 1 year, and it decreases by $400 each year. With the required rate of return at 15%: a) Determine the most economical year to replace the compressor. b) Determine the most economical year to replace the compressor if the salvage value is zero at all times. The initial cost of an air compressor is $6,000. Operation and maintenance costs tend to increase year by year throughout its life as shown below. YEAR 1 2 3 4 5 6 7 OPERATION AND REPAIR COSTS $1,000 $1,100 $1,200 $1,400 $1,600 $2,200 $3,000 The salvage value is $3,600 after 1 year, and it decreases by $400 each year. With the required rate of return at 15%: a) Determine the most economical year to replace the compressor. b) Determine the most economical year to replace the compressor if the salvage value is zero at all times.

Answer rating: 100% (QA)

Determining the Most Economical Replacement Year for Air Compressor a Considering Salvage Value 1 Ca... View the full answer