In the process of performing a replacement study, an engineer at a fiber optics manufacturing com­pany has two options to reduce costs on a produc­tion line. The currently owned Robot X can be sold now for $82,000. If kept, it will have an annual M&O cost of $30,000, and salvage values of $50,000, $42,000, and $35,000 after 1, 2, and 3 years, respectively. A challenger, Robot Y, will have a first cost of $97,000, an annual M&O cost of $27,000, and salvage values of $66,000, $56,000, and $42,000 after 1, 2, and 3 years, respectively. Which robot should be selected if a 2-year study period is used at an interest rate of 12% per year? Solve by two ways: by hand and by spreadsheet.

What will be an ideal response?






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