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Question 12.4: Economic Life The manufacturer of Bahadur, the pick-and-plac...

Economic Life

The manufacturer of Bahadur, the pick-and-place robot, now markets an updated version Virbahadur. Virbahadur costs $15,000 which is $5,000 less than what Bahadur cost 3 years ago. It comes with free maintenance for the first 2 years. For the salvage values and maintenance costs given as follows, determine Virbahadur’s economic life, assuming i to be 10%.

Year Year-End Salvage Value Maintenance Cost
1  $13,000 $0
2 $10,000 $0
3 $ 6,000 $200
4 $ 4,500  $300
5 $ 3,000 $800
6 $ 1,500 $200
7  $0 $300

The high maintenance cost of $800 at year 5 is due to an overhaul which keeps the subsequent years’ costs low.

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