Engineering Economy 7th Edition by Leland Blank ,Anthony Tarquin

Exercise 50

The projected market value and M O costs associated with a presently owned machine are shown (next page). An outside vendor of services has offered to provide the service of the existing machine at a fixed price per year. If the presently owned machine is replaced now, the cost of the fixed-price contract will be $33,000 for each of the next 3 years. If the presently owned machine is replaced next year or the year after that, the contract price will be $35,000 per year. Determine if and when the defender should be replaced with the outside vendor using an interest rate of 10% per year. Assume used equipment similar to the defender will always be available.