Contemporary Engineering Economics 6th Edition by Chan Park

Exercise 1

Five years ago, a conveyor system was installed in a manufacturing plant at a cost of $35,000. It was estimated that the system, which is still in operating condition, would have a useful life of eight years, with a salvage value of $3,000. If the firm continues to operate the system, the system's estimated market values and operating costs for the next three years are as follows:
A new system can be installed for $43,500. This system would have an estimated economic life of 10 years, with a salvage value of $3,500. The operating costs for the new system are expected to be $1,500 per year throughout its service life. The firm's MARR is 18%. Ignore any income tax effects for this problem.
(a) What is the remaining economic service life of the old machine?
(b) What is your decision-replace the defender now?
(c) In (b), if now is not the right time to replace the defender, when should it be replaced?
(d) In order to reach the conclusion in (c), what assumption(s) do you need in your replacement analysis?