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.