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Considering the following data, perform a replacement to determine when the existing asset should be replaced
Considering the following data, perform a replacement to determine when the existing asset should be replaced. Specify which technique should be used and justify your decision. (20 points). Existent asset marginal Year cost New Asset CAUE 1 $ 2,700 $ 2,820 2 $ 2,200 $ 2,900 3 $ 2,400 $ 2,560 4 $ 2,500 $ 2,740 5 $ 2,900 $ 2,950 6 $ 3,000 $ 2,980
Expert Solution
ANSWER -
The existing asset should be replaced when its economic life is over. In other words when marginal cost on existing asset exceed cost of a new replacement asset, the old existing asset should be replaced with the new one.
In the given case the above condition is satisfied in the sixth year:-
$3,000 (marginal cost) > $ 2,980 (new cost).
=> The existent asset needs to be replaced in 6th year.
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