Question

This problem was never solved. would someone please look at it. It's an accounting problem ...what is the aw of the defender and the aw of the challenger.

9-10. An existing robot is used in a commercial material laboratory to handle ceramic samples in the high-temperature environment that is part of several test procedures. Due to changing customer needs, the robot will not meet future service requirements unless it is upgraded at a cost of $2,000. Because of this situation, a new advanced technology robot has been selected for potential replacement of the existing robot. The accompanying estimates have been developed from information provided by some current users of the new robot and data obtained from the manufacturer. The firm’s before-tax MARR is 25% per year. Based on this information, should the existing robot be replaced? Assume that a robot will be needed for an indefinite period.(9.4, 9.7)

Defender
Current MV	$38,200
Upgrade cost (year 0)	$2,000
Annual expenses	$1,400 in year one, and increasing at the rate of 8% per year thereafter
Useful life (years)	6
MV at end of useful life	?$1,500

Challenger
Purchase price	$51,000
Installation cost	$5,500
Annual expenses	$1,000 in year one, and increasing by $150 per year thereafter
Useful life (years)	10
MV at end of useful life	$7,000

Answer 1

Option 1	Defender
Current MV	38200
Cost of Upgrade	2000
	40200
Net Present Value	6,416.28
Annuity	2.95
Annual Equivalent Cost	2,173.96

	Cash Flow	Present Value Factor	Present Value
0	2,000.00	1	2,000.00
1	1,400.00	0.80000	1,120.00
2	1,512.00	0.64000	967.68
3	1,632.96	0.51200	836.08
4	1,763.60	0.40960	722.37
5	1,904.68	0.32768	624.13
6	2,057.06	0.26214	539.25
6	(1,500.00)	0.26214	(393.22)
		2.95142	6,416.28

Option 2	Challenger
Purchase Price	51000
Installation	5500
Total Investment	56500
Less: MV of Defender	38200
Net Investment	18300
Net Present Value	22,616.94
Annuity Factor	3.5705
Annual Equivalent Cost	6,334.38

Year	Cashflow	Present Value Factor	Present Value
0	18300	1.0000	18,300.00
1	1000	0.8000	800.00
2	1150	0.6400	736.00
3	1300	0.5120	665.60
4	1450	0.4096	593.92
5	1600	0.3277	524.29
6	1750	0.2621	458.75
7	1900	0.2097	398.46
8	2050	0.1678	343.93
9	2200	0.1342	295.28
10	2350	0.1074	252.33
10	-7000	0.1074	(751.62)
		3.5705	22,616.94

Sice the annual Equivalent cost is more in the Option 2. It is better to Continue with Option 1 that is Defender.

Please note that since nothing was mentioned in the question I have used the Annual Equivalent method to arrive at the conclusion.

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