Nabisco Bakers currently employs staff to operate the equipment used to sterilize much of the mixing, baking, and packaging facilities in a large cookie and cracker manufacturing plant in Iowa. The plant manager, who is dedicated to cutting costs but not sacrificing quality and hygiene, has the projected data shown in the table below if the current system were retained for up to its maximum expected life of 5 years. A contract company has proposed a turnkey sanitation system for $5.0 million per year if Nabisco signs on for 4 to 10 years, and $5.5 million per year for a shorter number of years.

(a) At a MARR = 8% per year, perform a replacement study for the plant manager with a fixed study period of 5 years, when it is anticipated that the plant will be shut down due to the age of the facility and projected technological obsolescence. As you perform the study, take into account that regardless of the number of years that the current sanitation system is retained, a one-time close-down cost will be incurred for personnel and equipment during the last year of operation.
(b) What is the percentage change in the AW amount each year for the 5-year period? If the decision to retain the current sanitation system for all 5 years is made, what is the economic disadvantage in AW compared to that of the most economic retentionperiod?

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Years Retained AW, $ per Year Close-Down Expense, $ -2,300,000 一2.300.000 3,000,000 3,000,000 -3,500,000 -3,000,000 -2,500,000 -2,000,000 1,000,000 -1,000,000 500,000