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A 3 year-old a computer-controlled fabric cutting machine, which had a $25,000 purchasing price, has a current market (trade-in) value of $10,000 and expected O&M costs of $4,000, increasing by 1,000 per year. The machine is required to have an immediate repair that costs $2,000. The estimated market values are expected to decline by 20% annually (going forward). The machine can be used for another 7 years at most. The new machine has a $40,000 purchasing price. The new machine's O&M cost is estimated to be $4,000 for the first year, decreasing at an annual rate o $100 thereafter. The firm's MARR is 10%. Assume a unique minimum AEC(10%) for both machines (both the current and replacement machine). Using the information above, determine the economic service life along with the optimum annual equivalent cost of the defender (This is an infinite Horizon decision problem).

A 3 year-old a computer-controlled fabric cutting machine, which had a $25,000 purchasing price, has a current market (trade-in) value of $10,000 and expected O&M costs of $4,000, increasing by 1,000 per year. The machine is required to have an immediate repair that costs $2,000. The estimated market values are expected to decline by 20% annually (going forward). The machine can be used for another 7 years at most. The new machine has a $40,000 purchasing price. The new machine's O&M cost is estimated to be $4,000 for the first year, decreasing at an annual rate o $100 thereafter. The firm's MARR is 10%. Assume a unique minimum AEC(10%) for both machines (both the current and replacement machine). Using the information above, determine the economic service life along with the optimum annual equivalent cost of the defender (This is an infinite Horizon decision problem).

Practical Management Science
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
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A 3 year-old a computer-controlled fabric cutting machine, which had a $25,000 purchasing price, has a current market (trade-in) value of $10,000 and expected O&M costs of $4,000, increasing by 1,000 per year. The machine is required to have an immediate repair that costs $2,000. The estimated market values are expected to decline by 20% annually (going forward). The machine can be used for another 7 years at most. The new machine has a $40,000 purchasing price. The new machine's O&M cost is estimated to be $4,000 for the first year, decreasing at an annual rate of $100 thereafter. The firm's MARR is 10%. Assume a unique minimum AEC(10%) for both machines (both the current and replacement machine). Using the information above, determine the economic service life along with the optimum annual equivalent cost of the defender (This is an infinite Horizon decision problem). a) n=4 and AEC=Between $8,400 and $8,800 b) n=4 and AEC=Between $8,000 and $8,400 c) n=5 and AEC=Between $8,400 and $8,800 O d) None of the answers are correct e) n=3 and AEC=Between $8,000 and $8,400 f) n=2 and AEC=Between $8,000 and $8,400
Transcribed Image Text:A 3 year-old a computer-controlled fabric cutting machine, which had a $25,000 purchasing price, has a current market (trade-in) value of $10,000 and expected O&M costs of $4,000, increasing by 1,000 per year. The machine is required to have an immediate repair that costs $2,000. The estimated market values are expected to decline by 20% annually (going forward). The machine can be used for another 7 years at most. The new machine has a $40,000 purchasing price. The new machine's O&M cost is estimated to be $4,000 for the first year, decreasing at an annual rate of $100 thereafter. The firm's MARR is 10%. Assume a unique minimum AEC(10%) for both machines (both the current and replacement machine). Using the information above, determine the economic service life along with the optimum annual equivalent cost of the defender (This is an infinite Horizon decision problem). a) n=4 and AEC=Between $8,400 and $8,800 b) n=4 and AEC=Between $8,000 and $8,400 c) n=5 and AEC=Between $8,400 and $8,800 O d) None of the answers are correct e) n=3 and AEC=Between $8,000 and $8,400 f) n=2 and AEC=Between $8,000 and $8,400
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