Question

"An existing asset that cost $18,000 two years ago has a market value of $11,000 today,...

"An existing asset that cost $18,000 two years ago has a market value of $11,000 today, an expected salvage value of $1,900 at the end of its remaining useful life of six more years, and annual operating costs of $4,000. A new asset under consideration as a replacement has an initial cost of $19,100, an expected salvage value of $3,200 at the end of its economic life of three years, and annual operating costs of $2,200. It is assumed that this new asset could be replaced by another one identical in every respect after three years at the same initial cost of $19,100, if desired. Use a MARR of 19% to determine if the existing asset should be replaced immediately. Assume the project that uses the asset will last for 6 years from today. Enter the NET PRESENT COST of the preferred alternative."

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Answer #1

Old Asset: Analysis of Net present cost

New Asset: Analysis of Net present cost

Answer: a Net present cost of a New asset is lower so existing asset should be replaced immediately.

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