A construction firm purchased a used crane 2 years ago for $445,000. Its operating cost is $325,000 per year and it's expected salvage value 3 years from now is $145,000. The firm's CEO is considering replacing the presently owned used crane with a brand new crane with a much higher load limit which will cost $1.5 million. The operating cost of the new crane will be $260,000 per year, but its higher load limit will allow the contractor to generate extra revenue that is expected to amount to $525,000 per year. The new crane can probably be sold for $850,000 3 years from now. You have been asked to determine how much the presently owned crane would have to be worth on the open market today for the annual worth (AW) values of the two machines to be the same over a 3-year planning period. The contractor's MARR is 9% per year. The presently owned crane should be worth $ Con the open market.
A construction firm purchased a used crane 2 years ago for $445,000. Its operating cost is $325,000 per year and it's expected salvage value 3 years from now is $145,000. The firm's CEO is considering replacing the presently owned used crane with a brand new crane with a much higher load limit which will cost $1.5 million. The operating cost of the new crane will be $260,000 per year, but its higher load limit will allow the contractor to generate extra revenue that is expected to amount to $525,000 per year. The new crane can probably be sold for $850,000 3 years from now. You have been asked to determine how much the presently owned crane would have to be worth on the open market today for the annual worth (AW) values of the two machines to be the same over a 3-year planning period. The contractor's MARR is 9% per year. The presently owned crane should be worth $ Con the open market.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:A construction firm purchased a used crane 2 years ago for $445,000. Its operating cost is $325,000 per year and it's expected
salvage value 3 years from now is $145,000. The firm's CEO is considering replacing the presently owned used crane with a brand
new crane with a much higher load limit which will cost $1.5 million. The operating cost of the new crane will be $260,000 per year, but
its higher load limit will allow the contractor to generate extra revenue that is expected to amount to $525,000 per year. The new
crane can probably be sold for $850,000 3 years from now. You have been asked to determine how much the presently owned crane
would have to be worth on the open market today for the annual worth (AW) values of the two machines to be the same over a 3-year
planning period. The contractor's MARR is 9% per year.
The presently owned crane should be worth $
Con the open market.
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