Should the defender be replaced by the challenger now

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Reference no: EM131977163

Question: Four years ago a piece of equipment was purchased for $23,000. It has a CCA rate of 30%. Its current market value is $2000. Future market values will decline by 20% each year. The annual operating costs are estimated to be $4000 for next year of use and will increase by 6% per year if used for a longer duration. The company's tax rate is 40% and its MARR is 10%. Based on these data, the remaining economic life of this asset is found to be 2 years. A new machine costing $50,000 with a 12-year economic life and a $3000 salvage value may be purchased to replace the defender. The operating costs of this new machine are $3000 per year. This machine will also generate cost savings of $6000 per year due to higher efficiency and lower product defect rate. This machine's CCA rate is also 30%. The present equivalent cost of buying and using this challenger for 12 years has been found to be $22,817. Should the defender be replaced by this challenger now?

Reference no: EM131977163

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