A water pump currently has a resale value of $25,000 and is estimated to have a resale

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A water pump currently has a resale value of $25,000 and is estimated to have a resale value of $18,000 in 1 year’s time. The operating and maintenance cost of the pump for the coming year is $3,500, assumed to be incurred at the end of the year. The life cycle equivalent annual cost of a new pump is estimated at $10,000/year. Should the old pump be replaced now?

a. Assuming zero interest; and

b. Assuming interest at 10% p.a.

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