Razorback Corp. is evaluating whether it should keep its automatic guided vehicle or sell it immediately and purchase a new one. The current vehicle can be sold for $28,000 now; however, with an overhaul of $8250, the current vehicle can last another 5 years. Other relevant costs are shown below. Use a before- tax MARR of 5% per year and determine whether the current vehicle should be replaced. $$\begin{array} { | l | l | l | }
\hline & \text { Defender } & \text { Challenger } \
\hline \text { Capital investment, } \$ & 34,250,5 \text { years ago } & 38,250 \
\hline \text { Annual operating expenses, } \$ & 5500 & 7800 \
\hline \text { Useful life, years } & 10 & 12 \
\hline \begin{array} { l }
\text { Estimated salvage value at the end } \
\text { of useful life }
\end{array} & 2500 & 5500 \
\hline
\end{array}$$

Question

Razorback Corp. is evaluating whether it should keep its automatic guided vehicle or sell it immediately and purchase a new one. The current vehicle can be sold for $28,000 now; however, with an overhaul of $8250, the current vehicle can last another 5 years. Other relevant costs are shown below. Use a before- tax MARR of 5% per year and determine whether the current vehicle should be replaced. $$\begin{array} { | l | l | l | } 
\hline & \text { Defender } & \text { Challenger } \
\hline \text { Capital investment, } \$ & 34,250,5 \text { years ago } & 38,250 \
\hline \text { Annual operating expenses, } \$ & 5500 & 7800 \
\hline \text { Useful life, years } & 10 & 12 \
\hline \begin{array} { l } 
\text { Estimated salvage value at the end } \
\text { of useful life }
\end{array} & 2500 & 5500 \
\hline
\end{array}$$

Quizplus · Accepted Answer

The Answer is EUACD (5%) = $13,421.25 EUACC (5%) = $11,769.20
The EUAC of the challenger is less than the EUAC of the defender; the current equipment should be replaced immediately.