To improve package tracking at a FedEx transfer facility, conveyor equipment was upgraded with cool sensors at a cost of $545,000. The operating cost is expected to be $118,000 per year for the first 3 years and $181,000 for the next 3 years.
The salvage value of the equipment is expected to be $150,000 for the first 2 years, $95,000 for the second two years and, due to obsolescence, it won't have a significant value for the last two years.
At an interest rate of 12% per year, determine
a) The economic service life of the equipment and associated annual worth.
b) The percentage increase in the AW of cost if the equipment is retained 2 years longer than the Economic Service Life.