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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
A small company that manufactures vibration isolation platforms is trying to decide whether it should upgrade the current assembly system (System D), which is rather labor-intensive, with one that is more highly automated (System C). Some components of the current system can be sold now for $9000, but they will be worthless hereafter. The operating cost of the existing system is $192,000 per year. System C will cost $320,000 with a $50,000 salvage value after four years. Its operating cost will be $68,000 per year. If you are told to do a replacement analysis over a 2-year planning period using an interest rate of 10% per year, which system do you recommend? Assume the salvage value of system C after two years is estimated at $100,000.
                                               System D                              System C
    Market value, $                     9,000                                 320,000
    Annual cost, $/year        -192,000                                 -68,000
    Salvage value, $                     0                                        50,000
    Life, years                               2                                             4
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