Question

Equipment purchased 2 years ago by Newport Corporation to make pneumatic vibration isolators cost $90,000. It has a market value that can be described by the relation $90,000 – $5233k, where k is the years from time of purchase. The operating cost for the first 5 years is $25,000 per year, after which it increases by $5,000 per year. The asset’s salvage value was originally estimated to be $9,000 after a predicted 10-year useful life. Determine the values of CR if a replacement study is done 5 years from now and it is assumed that the equipment will be kept a maximum of only one more year after that at an interest rate of %10 per year.

Answer 1

Solution:

a) Replacements story is done now:

P = $90,000 - $5,233K

Since the defender was bought two years ago

P = $90,000 - $5,233(2)

P =79,556

The annual cost is $25,000 and constant for the first two years. The salvage value is estimated to be $9,000 at the end of the useful life.

AOC = $25,000

S =$9,000

b)Replacement story is done after one year

P = $90,000 - $5233(k)

p =$90,000 - $5,233(3)

p= $74,301

The annual cost is $25,000 and constant for the first three years. The salvage value is estimated to be $9,000 at the end of the useful life.

AOC = $25,000

S =$9,000