An engineer with Haliburton calculated the AW values shown for a presently owned machine by using estimates

Question:

An engineer with Haliburton calculated the AW values shown for a presently owned machine by using estimates he obtained from the vendor and company records.

Retention Period Years AW Value,$ per Year

1.......... – 92,000

2 .......... – 81,000

3 .......... – 87,000

4 ......... – 89,000

5 .......... – 95,000

A challenger has an economic service life of 7 years with an AW of $–86,000 per year. Assume that used machines like the one presently owned will always be available and that the MARR is 12% per year. If all future costs remain as estimated for the analysis, the company should purchase the challenger:

(a) Now

(b) After 2 years

(d) Never

MARR
Minimum Acceptable Rate of Return (MARR), or hurdle rate is the minimum rate of return on a project a manager or company is willing to accept before starting a project, given its risk and the opportunity cost of forgoing other...