Searching for ways to cut costs and increase profit, one of the industrial engineers at Home Comfort Furniture Manufacturers, Inc. determined that the equivalent annual worth of an existing machine...

Searching for ways to cut costs and increase

profit, one of the industrial engineers at Home

Comfort Furniture Manufacturers, Inc. determined

that the equivalent annual worth of an existing

machine over its remaining useful life of 2

years is $70,000 per year. The IE also determined

that used machines like the one currently in use are not available any longer, but the defender can

be replaced with a challenger that is more advanced.

It will have an AW of $80,000 if it is

kept for 2 years or less, $75,000 if it is kept between

3 and 4 years, and $65,000 if it is kept for

5 to 10 years. If the company uses a specified

3-year planning horizon and an interest rate of

15% per year, determine (a) when the company

should replace the machine, and (b) the AW for

the next 3 years.