Question

9-2. An existing robot can be kept if $2,000 is spent now to update 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 Expense	$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 the information, should the existing robot be replaced right now? Assume the robot will be needed for an indefinite period of time. (Hint: if you use the AW method you can compare the 2 different useful lives.) (Section 9.7)

Possible answers:

Using AW method, Challenger by $627

Using AW method, Challenger by $1,627

Using AW method, Defender by $627

Using AW method, Defender by $1,626

Answer 1