An electronics components manufacturer is considering the replacement of a machine required in its assembly line. A planning horizon of 8 years is to be used in the replacement study. The old machine (defender) has a current market value of $25,000. If the defender is retained, it is anticipated to have annual operating and maintenance costs of $40,000. It will have a zero market value at the end of eight additional years of service. The new machine (challenger) will cost $75,000 and will have operating and maintenance costs of $15,000. It will have an MV of $10,000 at the end of the planning horizon. Determine the preferred alternative using a PW comparison and a MARR (before tax) of 20% per year.

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Defender Challenger Current MV Required upgrade Annual expenses Remaining useful life MV at end of useful life $38,000 $2,000 $1,400 6 years -$1,500 Purchase price Installation cost Annual expenses Useful life MV at end of useful life $51,000 $5,500 $1,000 10 years $7,000