(a) An existing machine In a factory has an annual maintenance cost of RM 40,000. A new and more efficient machine will require an investment of RM 90,000 and is estimated to have a salvage value of RM 30,000 at the end of 8 years. Its annual expenses for maintenance and upkeep, etc. overall total is RM 22,000. If the company expects to earn 12% on its investment, will it be worthwhile to purchase the new machine?

ENGR.ECONOMIC ANALYSIS
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Author:NEWNAN
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Chapter1: Making Economics Decisions
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1. Unlike standard life cycle cost analysis, the Estimated Uniform Annual Cost (EUAC) method
expresses life cycle costs as an annualized estimate of cash flow Instead of a lumpsum
estimate of present value.
(a) An existing machine In a factory has an annual maintenance cost of RM 40,000. A new and
more efficient machine will require an investment of RM 90,000 and is estimated to have a
salvage value of RM 30,000 at the end of 8 years. Its annual expenses for maintenance and
upkeep, etc. overall total is RM 22,000. If the company expects to earn 12% on its
investment, will it be worthwhile to purchase the new machine?
(b)A construction company plans to purchase new cut-and-finish equipment. Two
manufacturers offered the estimates as in Table 1 below. Determine which company should
be selected on the basis of present worth comparison, if the MARR is 15% per year.
Table 1 / Jadual 1
First cost / Kos pertama
Annual cost / Kos
tahunan
Salvage value / Nilai
penyelamatan
Life, years I Hayat, tahun
Company X
15000
3500
1000
6
Company Y
18000
3100
2000
9
Transcribed Image Text:1. Unlike standard life cycle cost analysis, the Estimated Uniform Annual Cost (EUAC) method expresses life cycle costs as an annualized estimate of cash flow Instead of a lumpsum estimate of present value. (a) An existing machine In a factory has an annual maintenance cost of RM 40,000. A new and more efficient machine will require an investment of RM 90,000 and is estimated to have a salvage value of RM 30,000 at the end of 8 years. Its annual expenses for maintenance and upkeep, etc. overall total is RM 22,000. If the company expects to earn 12% on its investment, will it be worthwhile to purchase the new machine? (b)A construction company plans to purchase new cut-and-finish equipment. Two manufacturers offered the estimates as in Table 1 below. Determine which company should be selected on the basis of present worth comparison, if the MARR is 15% per year. Table 1 / Jadual 1 First cost / Kos pertama Annual cost / Kos tahunan Salvage value / Nilai penyelamatan Life, years I Hayat, tahun Company X 15000 3500 1000 6 Company Y 18000 3100 2000 9
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