A construction company is considering replacing and old inefficient compactor which has a current market of $10.000. The old equipment has 4 years left of service life with market value going down by $1800/year. The annual operating cost of the old compactor is $6, 000/year for the first year. To continue using the old compactor for subsequent years, the operating cost will rise by $350/year. The manager reports that new type of compactors can be bought for $11, 500 with service life of 4 years, Over its service life, the compactor, in comparison to the old one, will reduce the annual cost of operation and maintenance to $6, 000 year. The market value of the new compactor will decrease by $2, 000/year for each year of the remaining service life. The company's MARR is 10%.
a. What is the economic life of the Defender?
b. Knowing that the economic life of the Challenger is 4 years, should the old compactor replaced now?
Please do not use Excel to solve this problem.