A machine purchased 1 year ago for $85,000 costs more to operate than anticipated. When purchased, the

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A machine purchased 1 year ago for $85,000 costs more to operate than anticipated. When purchased, the machine was expected to be used for 10 years with annual maintenance costs of $22,000 and a $10,000 salvage value. However, last year, it cost the company $35,000 to maintain it, and these costs are expected to escalate to $36,500 this year and increase by $1500 each year thereafter. The market value is now estimated to be $85,000 − $10,000k, where k is the number of years since the machine was purchased. It is now estimated that this machine will be useful for a maximum of 5 more years. A replacement study is to be performed now. Determine the values of P, n, AOC, and S of this defender.

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...
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Engineering Economy

ISBN: 978-0073523439

8th edition

Authors: Leland T. Blank, Anthony Tarquin

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