Question

currently a firm replaces its equipment every year. it has calculated the equivalent annual cost of replacement as follows: replacement period salvage value eac capital costs annual repair costs eac repair costs 1 $1,420 $1,287 - - 2 $1,102 $1,082 $400 $189 3 $910 $976 $600 $298 4 $795 $812 $800 $437 5 $580 $673 $1,200 $592 how much can the firm save (annually) by making a replacement decision based on the economic life criterion? question 15 options: 38 44 25 22 16

Answer 1

The firm can save money by replacing equipment based on the economic life criterion rather than replacing it every year; exact savings from the provided options are not determined.

Step-by-step explanation:

To answer this, one would compare the Equivalent Annual Costs (EAC) of replacing equipment every year with the EAC of replacing it at different intervals. The firm currently replaces its equipment every year, with an EAC of $1,287. If the firm moves to a 5-year replacement cycle (which has the lowest EAC of $673), the firm would save $1,287 - $673 = $614 annually. However, given the available options, the correct answer is not provided. Further details are needed for a complete analysis.