2. A lathe purchased by a machine tool company 9 years ago for $50,000 is expected...

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2. A lathe purchased by a machine tool company 9 years ago for $50,000 is expected to have the salvage values and operating costs shown below for additional years of service. It can be sold immediately for $9000 by placing an ad in a trade magazine. A replacement machine will cost $125,000, have a $10,000 salvage value after its 10-year ESL, and have an AOC of $35,000 per year. At an interest rate of 15% per year, determine if the company should replace the defender with the challenger and, if so, when. Year 1 2 3 Salvage Value At Operating Cost, End of Year, $ $ 6500 4500 1500 -50000 -54000 -60000 2. A lathe purchased by a machine tool company 9 years ago for $50,000 is expected to have the salvage values and operating costs shown below for additional years of service. It can be sold immediately for $9000 by placing an ad in a trade magazine. A replacement machine will cost $125,000, have a $10,000 salvage value after its 10-year ESL, and have an AOC of $35,000 per year. At an interest rate of 15% per year, determine if the company should replace the defender with the challenger and, if so, when. Year 1 2 3 Salvage Value At Operating Cost, End of Year, $ $ 6500 4500 1500 -50000 -54000 -60000

Answer rating: 100% (QA)

The machine tool company should replace the defender with the challenger The replacement will occur ... View the full answer