Your business needs an excavator and you are faced with the following two alternatives:

Alternative A: Keep using an old excavator: You currently own an excavator that you purchased a long time ago. Its current market value is $120,000. The operating and maintenance costs for the excavator are $200,000 each year. In 10 years, the salvage value of the this excavator is expected to be zero.

Alternative B: Sell the old excavator and buy a new one: You could sell the current excavator for its market value and purchase a new excavator for $600,000. The annual O&M costs would be $100,000 in year 1 and increase by 18% each subsequent year. The salvage value of this excavator at the end of 10 years is expected to be $50,000. MARR is 18%.

Draw the cash flow diagram for both alternatives and perform an analysis using EUAC to determine whether it is economical to replace the old excavator with the new one. Provide the following answers:

EUAC of alternative B (round to the nearest thousand ex: 152458 -> 152000) =

Which alternative should be chosen

Answer rating: 100% (QA)

Alternative A Cash Flows Year 0 0 Year 1 200000 Year 2 200... View the full answer