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| Teaching Since: | May 2017 |
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| Questions Answered: | 66690 |
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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
9.20Â Â Â A machine purchased 3 years ago for $140,000 is now too slow to satisfy increased demand. The machine can be upgraded now for $70,000 or sold to a smaller company for $40,000. The current machine will have an annual operating cost of
$85,000 per year and a $30,000 salvage value in 3
Â
years. If upgraded, the presently owned machine will be retained for only 3 more years, then re- placed with a machine to be used in the manufac- ture of several other product lines.
The replacement machine, which will serve the company now and for at least 8 years, will   cost
$220,000. Its salvage value will be $50,000 for years 1 through 5; $20,000 in year 6; and $10,000 there- after. It will have an estimated operating cost  of
$65,000 per year. The company asks you to perform an economic analysis at 15% per year using a 3-year planning horizon. Should the company replace the presently owned machine now, or do it 3 years from now? What are the AW values?
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