Two production machines are under consideration. Machine A, the defender, bought 1 year
ago, exhibits the following characteristics:
First Cost $15.000
Physical Life 5 years
Maintenance Cost $2.400 per year
Salvage Value at any time 0
Similar information on machine B, the challenger, is given:
First Cost $20.000
Physical Life 4 years
Maintenance Cost $2.400 per year
Salvage Value at any time $2.000
The opportunity cost of capital for company considering the machines is 12 percent. No taxes
or inflation will be considered for this preliminary analysis. Use EUAC to make your decision.
(a) What is the economic life of challenger?
(b) Should the challenger be purchased at this time? Say why, indicating which costs and