Question: ACME is investigating the need to replace a combined water filtration pump and motor set (defender) with a more efficient running one (challenger). The market price for the existing pump is $20,000.00, It's remaining useful life is 3 years where its salvage value is $5,000.00. The O&M costs are $4,000 per year.
The new pump/motor set costs $30,000.00 with a 3 year useful life and a $11,000.00 salvage value. It's O&M costs are $3,000.00 per year. The MARR for this company is 12%.
What is the favorable Annual Equivalent Costs between the two scenarios?