Question: The replacement of a planing machine is being considered by the Reardorn Furniture Company. (There is an indefinite future need for this type of machine.) The best challenger will cost $30,000 for installation and will have an estimated economic life of 12 years and a $2,000 MV at that time. It is estimated that annual expenses will average $16,000 per year. The defender has a present BV of $6,000 and a present MV of $4,000. Data for the defender for the next three years are as follows:
Using a before-tax interest rate of 15% per year, make a comparison to determine whether it is economical to make the replacement now.