(2). After 5 years' operation, two pieces of equipment are being considered for the same service to be added to the existing plant, the installed costs and yearly operating costs associated with each piece of the equipment are as follows: Costs Investment A $4500 Operating cost Equipment life $2500/year 4y B $7000 $1600/year 5y a. If the internal rate is 8% p.a, which equipment do you recommend using equivalent annual operating cost method? b. For both equipment, there are two material options, leading to different yearly saving. Please determine the option for the chosen piece of equipment with the same internal interest rate of 10% and 5-year operation using both capital cost and operating cost methods? Options A-1 Investment costs $5000 Yearly savings $2000 A-2 $6000 $3000 B-1 $8000 $3200 B-2 $12,000 $4000
(2). After 5 years' operation, two pieces of equipment are being considered for the same service to be added to the existing plant, the installed costs and yearly operating costs associated with each piece of the equipment are as follows: Costs Investment A $4500 Operating cost Equipment life $2500/year 4y B $7000 $1600/year 5y a. If the internal rate is 8% p.a, which equipment do you recommend using equivalent annual operating cost method? b. For both equipment, there are two material options, leading to different yearly saving. Please determine the option for the chosen piece of equipment with the same internal interest rate of 10% and 5-year operation using both capital cost and operating cost methods? Options A-1 Investment costs $5000 Yearly savings $2000 A-2 $6000 $3000 B-1 $8000 $3200 B-2 $12,000 $4000
Chapter19: Pricing Concepts
Section: Chapter Questions
Problem 6DRQ
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Please help with this equipment service problem
Transcribed Image Text:(2). After 5 years' operation, two pieces of equipment are being considered for the same service to be
added to the existing plant, the installed costs and yearly operating costs associated with each piece of
the equipment are as follows:
Costs
Investment
A
$4500
Operating cost
Equipment life
$2500/year
4y
B
$7000
$1600/year
5y
a. If the internal rate is 8% p.a, which equipment do you recommend using equivalent annual
operating cost method?
b. For both equipment, there are two material options, leading to different yearly saving. Please
determine the option for the chosen piece of equipment with the same internal interest rate of
10% and 5-year operation using both capital cost and operating cost methods?
Options
A-1
Investment costs
$5000
Yearly savings
$2000
A-2
$6000
$3000
B-1
$8000
$3200
B-2
$12,000
$4000
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