A city water and waste-water department has a four-year-old sludge pump that was initially purchased for $65,000. This pump can be kept in service for an additional four years, or it can be sold for $35,000 and replaced by a new pump. The purchase price of the replacement pump is $50,000. The projected MVs and operating and maintenance costs over the four-year planning horizon are shown in the table that follows. Assuming the MARR is 10%, (a) determine the economic life of the challenger and (b) determine when the defender should be replaced.

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Defender Challenger MV at O&M MV at O&M EOY Cost EOY Cost Year $25,000 $18,500 21,000 17,000 13,000 $40,000 $13,000 32,000 24,000 16,000 15,500 18,000 20,500 21,000 23,500 26,000 3 4