Salvage cost using each maintenance management option
Course:- Financial Management
Reference No.:- EM131056180

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Option 1: Annual machine maintenance expense is $15,000, expected salvage value is $150,000 after a lifetime of 15 years.

Option 2: Annual machine expense is $7000. There is an extra cost of $50,000 at the end of year 7 (over and above the regular maintenance cost for year 7). The total expected life for this machine is 9 years. Expected salvage value is $100,000.

Compare the value of the maintenance costs minus the salvage cost using each maintenance management option, assuming a discount rate of 4%. Provide your answer as a decimal ratio of the net costs associated with option1 to those of option 2 (C1/C2)

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