A company that manufactures amplified pressure transducers is trying to decide between the machines shown below. Compare them on the basis of their present worth values, using an interest rate of 7% per year First cost, S Annual operating cost, $/year Overhaul in year 3, S Overhaul in year 5, S Salvage value, S Life, years Variable Speed -250,000 -231,000 -80,000 50,000 6 Dual Speed -224,000 -235,000 -50,000 10,000 6 (Source: Blank and Tarquin) (Overhaul is a maintenance or repair. It is a one time expense in that specific year)

A company that manufactures amplified pressure transducers is trying to decide between the machines shown below. Compare them on the basis of their present worth values, using an interest rate of 7% per year First cost, S Annual operating cost, $/year Overhaul in year 3, S Overhaul in year 5, S Salvage value, S Life, years Variable Speed -250,000 -231,000 -80,000 50,000 6 Dual Speed -224,000 -235,000 -50,000 10,000 6 (Source: Blank and Tarquin) (Overhaul is a maintenance or repair. It is a one time expense in that specific year)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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11-22 Opportunity costs. After thorough saving, a student bought a second-hand car for $1,500. After three months, the gear box broke down and he had to replace it with a new gear box for $400. One morning the car wouldn't start. He called a friend who knew a lot about cars, who concluded that the fuel pump needed replacing at a cost of $250. The car drove surprisingly well during the next several months, but then the car's drive shaft broke, and a mechanic at the garage told the student that this was an expensive repair that had to be done in order to drive again. The replacement of the drive shaft was estimated at $800. The student is wondering if he should he repair the car or not. On the one hand, it is a lot of money. On the other hand he has already invested $2,150 and this will be lost if he doesn't repair the car. 1. What should the student do? Discuss the opportunity costs. Required
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