Subject: Engineering Economics

Topic: Replacement Analysis Question:

22. A machine was purchased two years ago for Rs. 10,000 . Its annual maintenance cost is Rs. 750. Its life is six years and its salvage value at the end of its life is Rs. 1,000. Now, a company is offering a new machine at a cost of Rs. 10,000. Its life is four years and its salvage value at the end of its life is Rs. 4,000. The annual maintenance cost of the new machine is Rs. 500 . The company which is supplying the new machine is willing to take the old machine for Rs. 8,000 if it is replaced by the new machine. Assume an interest rate of 12%, compounded annually. (a) Find the comparative use value of the old machine. (b) Is it advisable to replace the old machine