A joint former cost ¥6 000 000 to purchase and ¥1 000 000 to install seven years ago. The market value now is ¥3 300 000, and this will decline by 12% of current value each year for the next three years. Operating and maintenance costs are estimated to be ¥340 000 this year, and are expected to increase by ¥50 000 per year.
(a) How much should the EAC of a new joint former be over its economic life to justify replacing the old one sometime in the next three years? The ALARR is 10%.
(b) The EAC for a new joint former turns out to be ¥1 030 000 for a 10-year life. Should the old joint former be replaced within the next three years? If so, when?
(c) Is it necessary to consider replacing the old joint former more than three years from now, given that a new one has an EAC of ¥1 030 000?
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