Engineering Economy 7th Edition by Leland Blank ,Anthony Tarquin

Exercise 54

BioHealth, a biodevice systems leasing company, is considering a new equipment purchase to replace a currently owned asset that was purchased 2 years ago for $250,000. It is appraised at a current market value of only $50,000. An upgrade is possible for $200,000 now that would be adequate for another 3 years of lease rights, after which the entire system could be sold on the international circuit for an estimated $40,000. The challenger, which can be purchased for $300,000, has an expected life of 10 years and a $50,000 salvage value. Determine whether the company should upgrade or replace at a MARR of 12% per year. Assume the AOC estimates are the same for both alternatives.