Economic Analysis
A replacement analysis of Bahadur, a pick-and-place robot, purchased 3 years ago for $20,000 has been initiated by the job shop. At the time of purchase Bahadur’s useful life was estimated to be 5 years, with an expected salvage value of $5,000. During the past 3 years, SL-depreciation has been charged.
Due to recent innovations in microprocessor technology, a new robot is available in the market for $15,000. The robot manufacturer is offering $7,000 for the defender as trade-in. The job shop has researched to conclude that Bahadur can be sold in the open market for $5,000. Doing so will enable the job shop to buy the new versatile robot that will not only do Bahadur’s job but also facilitate integration among the other computer-controlled machines of the plant. Determine Bahadur’s
(a) book value,
(b) economic worth, and
(c) sunk cost