Amoco Canada has oil field equipment placed into service 5 years ago for which a replacement
study has been requested. Due to its special purpose, it has been decided that the current equipment
will have to serve for either 2, 3, or 4 more years before replacement. The equipment has
a current market value of $100,000, which is expected to decrease by $25,000 per year. TheAOC
is constant now, and is expected to remain so, at $25,000 per year. The replacement challenger is
a fixed-price contract to provide the same services at $60,000 per year for a minimum of2 years
and a maximum of 5 years. Use MARR of l2% per year to perform a replacement study over a
6-year period to determine when to sell the CUiTent equipment and purchase the contract services.