An existing robot can be kept if $2,000 is spent now to upgrade it for future service requirements. Alternatively, the company can purchase a new robot to replace the old robot. The following estimates have been developed for both the defender and the challenger. Defender Challenger Current MV $38,000 Purchase price $51,000 Required upgrade $2,000 Installation cost $5,500 Annual expenses $1,400 Annual expenses $1,000 Remaining useful life 6 years Useful life 10 years MV at end of useful life −$1,500 MV at end of useful life $7,000 The company’s before-tax MARR is 20% per year. Based on this information, should the existing robot be replaced right now? Assume the robot will be needed for an indefinite period of time.
An existing robot can be kept if $2,000 is spent now to upgrade it for future service requirements. Alternatively, the company can purchase a new robot to replace the old robot. The following estimates have been developed for both the defender and the challenger.
Defender Challenger
Current MV $38,000 Purchase price $51,000
Required upgrade $2,000 Installation cost $5,500
Annual expenses $1,400 Annual expenses $1,000
Remaining useful life 6 years Useful life 10 years
MV at end of useful life −$1,500 MV at end of useful life $7,000
The company’s before-tax MARR is 20% per year. Based on this information, should the existing robot be replaced right now? Assume the robot will be needed for an indefinite period of time.
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 20 images
