Question

A mechanical engineer purchased a machine 1 year ago for $85,000 and is now seeing that it costs more to operate than anticipated. The engineer expected to use the machine for 10 years with annual maintenance costs of $22,000 and a salvage value of $10,000. Last year though, it cost $35,000 to maintain the machine and these costs are expected to increase to $36,500 this year and increase by $1500 each year after. The market value is now estimated to be $85,000-$10,000k, where k is the number of years since the machine was purchased. It is now estimated this machine will be useful for a maximum of 5 more years. Perform a replacement study now and determine the values of P, n, AOC, and S of this defender.

Answer 1

P = -$75000

n = 5 years

AOC = $35000

and S = $10000

Step-by-step explanation:

Considering that the machine that is expected to last 10 will only do for 5 years and that the market value is now $85000 - $10000

we can the say,

P = -($85000 - $10000)

= - $75000

n = 5 years which is the number of years it is expected to last

AOC = $35000

S = $10000 which is the savaged value on the machine