MARR=10%

Defender:

Current salvage value = $6,000, decreasing at 25% each year

Required overhaul = $1,500

O&M = $2,000 in year 1, increasing by 40% each year

Maximum lifespan of 5 years

Challenger:

Investment = $17,432.65

Zero Salvage value.

Zero operating costs.

$1 million repair cost required in 5^th year.

Find the AEC of the most cost-effective indefinite project.

Hint: you will need to first find the cost-efficient indefinite project by comparing the AEC at ESL for each machine, and possibly use marginal analysis to determine the optimal indefinite project. Describe and then find the PEC of the indefinite project. From there you can find the AEC of the indefinite project.

a) 5050-5150

b) 5150-5250

c) 5250-5350

d) 5350-5450

e) None of the above