A machine essential for a companys operations costs $100,000 and has operating costs of $8,000 the first year. The operating

A machine essential for a companys operations costs $100,000 and has operating costs of $8,000 the first year. The operating

Question:

A machine essential for a company’s operations costs $100,000 and has operating costs of $8,000 the first year. The operating cost increases by 9% percent each year thereafter. The operating costs occur at the end of each year. The interest rate is 10% and there are no taxes. Due to its specialized nature, the machine has a salvage value Vr. If t represents the number of years after the machine is purchased, then Vr = 100, 000 − 10, 000 × t for 1 ≤ t ≤ 10 and Vr = 0 for t ≥ 11. 
Answer the following:
1. How long should the machine be kept until it is replaced by a new identical machine?
2. What is the equivalent annual cost (EAC) of the period selected?

Expert Answer:

Answer rating: 100% (QA)

To determine how long the machine should be kept until it is replaced by a new identical machine and calculate the equivalent annual cost EAC for that
View the full answer