Replacement Analysis
Replacement analysis compares the economic cost of keeping existing equipment against buying a replacement.
Replacement analysis compares the economic cost of keeping existing equipment against buying a replacement.
A standby machine costs $3,000, has economic life 10 years, salvage $600, and annual operating cost $100. Without it, shutdown cost is $350 per year. MARR is 10%. Should it be purchased?
EUAC of shutdown is $350. EUAC of standby machine is $550.59.
Final answer: do not purchase because standby EUAC is greater.
A new machine costs $16,000 installed, has 8-year life, $3,000 salvage, and $1,000 annual expenses. Existing machine can be sold for $5,000, has 8 more years, $2,000 salvage, and $1,800 annual operating cost. At MARR 15%, replace?
Present worth cost of new machine is $19,507. Present worth cost of existing machine is $12,423.
Final answer: do not replace the existing machine.
An old machine can be sold now for $15,000. If kept another year, salvage drops to $13,000 and operating expense is $30,000. A new machine costs $50,000 with 5-year life, $20,000 salvage, and operating costs starting at $18,000 increasing $1,000 per year. MARR is 20%. Should it be replaced?
EUAC of the new machine is $33,671.89. Solving for comparative use value of the old machine gives $13,893.24.
Since comparative use value is less than selling price $15,000, replace the machine.