Big-J Construction Company, Inc. (Big-J CC) is conducting routine periodic review of existing field equipment. The owner of Big-J CC has asked for a replacement evaluation of a paving machine now in use. A newer, more efficient machine is being considered. The old machine was purchased 3 years ago for $200,000, and yearly operating and maintenance costs are as follows. Big-J CC Uses a of 20%; the current market value of the paver is $120,000.
Estimates of Operating &Maintenance Cost and Market Value for Next 7 Years (old paver)
Operating Maintenance Market Value
Year, Cost in Cost in If Sold
N Year n Year n in Yearn
1 $15,000 $ 9,000 $85,000
2 15,000 10,000 65,000
3 17,000 12,000 50,000
4 20,000 18,000 40,000
5 25,000 20,000 35,000
6 30,000 25,000 30,000
7 35,000 30,000 25,000
Data for the new paving machine have been analyzed. Its most economic life is at 8 years with a minimum EUAC of $ 62,000. Make a recommendation to Big-J CC regarding the paving machine in question.
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