Engineering Board Exam Reviewer · Replacement Analysis · medium
The defender has an EUAC of about P52,381 and the challenger about P52,537 (from the two preceding problems, 12% interest). What is the economic decision?
- Replace with the challenger, because it has the longer life
- Replace with the challenger, because its EUAC is lower
- Keep the defender, because its EUAC is slightly lower
- The alternatives are exactly equivalent
Answer
C. Keep the defender, because its EUAC is slightly lower
Solution
Choose the alternative with the lower equivalent annual cost: P52,380.94<P52,536.52. The defender is cheaper by about P155.58 per year, so keep it.
More Replacement Analysis questions
- A new machine (the challenger) costs P250,000, lasts 10 years, has a salvage value of P30,000, and annual operating costs of P10,000. Find…
- An existing machine (the defender) has a market value of P80,000, 3 years of remaining life, a salvage value of P20,000 at the end of that…
- A machine bought years ago has a book value of P150,000 but could be sold today for only P90,000. What value should be used as the…
- Using the challenger from the earlier problems (EUAC about P52,537), what market value of the defender (salvage P20,000 after 3 years…
- A machine can be sold now for P60,000 or for P48,000 one year from now. Operating cost for the coming year is P15,000. At 10% interest…