Paper Details
A machine that is critical to the Phelps-Dodge copper refining operation was purchased 7 years ago for $160,000. Last year a replacement study was performed with the decision to retain it for 3 more years. The situation has changed. The equipment is estimated to have a value of $8000 if “scavenged” for parts now or anytime in the future. If kept in service, it can be minimally upgraded at a cost of $43,000, which will make it usable for up to 2 more years. Its operating cost is expected to be $22,000 the first year and $25,000 the second year. Alternatively, the company can purchase a new system that will have an equivalent annual worth of $_47,063 per year over its ESL. The company uses a MARR of 10% per year. Calculate the relevant annual worth values, and determine when the company should replace the machine.
