A critical machine in BHP Billiton's copper refining operation was purchased 7 years ago for $160,000. Last year a replacement studywas performed with the decision to retain it for 3 more years. The situation has changed. The equipment is estimated to have a valueof $8000 if "scavenged" for parts now or anytime in the future. If kept in service, it can be minimally upgraded at a cost of $43,000 tomake it usable for up to 2 more years. Its operating cost is estimated at $22,000 in the first year and $29,000 in the second year.Alternatively, the company can purchase a new system, the challenger, that will have an AWC of $-51,000 over its ESL. Use a MARR of10% per year and annual worth analysis to determine when the company should replace the machine.The AW value of the challenger is $-and the AW value of the defender at the end of year 2 is $-The company should replace the machine (after two years

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Answered: A critical machine in BHP Billiton's…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Company X is looking to expand their operations to add a second product line capable of producing 1.25 Million units per year. The total estimated investment cost for the new line is $25 Million, with a salvage value equal to 20% of the purchase price at the end of the 6-year project life. The annual expected sales volume is shown below, in thousands of units: Year 1 2 3 4 5 6Volume 525,000 600,000 725,000 800,000 925,000 1,000,000 The average selling price is fixed for the project life at $125 per unit. Variable costs (per unit) include $35 for materials, $20 for manufacturing, and $18 for labor. There are additional fixed operating and maintenance costs totaling $14.25 Million per year. The company’s working capital calculations are based on a 2.5-month supply of raw materials and 1.5 months of combined inventory (WIP and finished goods) that it maintains to balance overall industry demand. FX…
A material handling system was purchased 3 years ago for $116,866. Two years ago it required substantial upgrading at a cost of $13,319. It once again is requiring an upgrading cost of $26,056. Alternately, a new system can be purchased today at a cost of $218,589, with a salvage value of $21,003. The existing machine could be sold today for $48,133. In an economic replacement analysis, what first cost should be assigned to the existing system?
Which of the following statements is CORRECT about replacement analysis where service lives of defender and challenger are unequal? Group of answer choices If the asset will be needed indefinitely use a study period approach. If asset replacement is a one-time occurrence, use a study period approach. In the study period approach, longer study period is best for projects with definitive end. For projects that are needed for a specific number of years, assume “Repeat Replacement.”
Please solve without using excel, solve using formulas or tables
Huntington Medical Center purchased a used low-field MRI scanner 2 years ago for $445,000. Its operating cost is $225,000 per year and it can be sold for $125,000 anytime in the next 3 years. The Center's director is considering replacing the presently owned MRI scanner with a state-of-the-art 3 Tesla machine that will cost $2 million.The operating cost of the new machine will be $220,000 per year, but it will generate extra revenue that is expected to amount to $425,000 per year. The new unit can probably be sold for $725,000 3 years from now. You have been asked to determine how much the presently owned scanner would have to be worth on the open market for the AW values of the two machines to be the same over a 3-year planning period. The Center's MARR is 9% per year. The presently owned scanner should be worth $ on the open market.
A group of students decided to lease and run a gasoline service station. The lease is for 10 years. Almost immediately the students were confronted with the need to alter the gasoline pumps to read in liters. The Dayton Company has a conversion kit available for $3000 that may be expected to last 10 years. The firm also sells a $1000 conversion kit that has a 5-year useful life. The students believe that any money not invested in the conversion kits may be invested elsewhere at a 10% interest rate. Income tax consequences are to be ignored in this problem. (a) Assuming that future replacement kits cost the same as today, which alternative should be selected? (b) If one assumes a 4% inflation rate, which alternative should be selected?
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A machine cost P60,000 and the salvage value is 10,000 after 10 years. Find the book value after 7 years Double Declining Balance Method.
4. A 3-year-old manufacturing equipment, which has a present market value of $13,000, is being considered for early replacement. The estimated five-year market values and annual operating costs are shown below. The AW replacement values of year 1 and 2 have already been conducted, help the company determine the total AW3 replacement value (year 3 only) which will consider how long the asset should be retained, its ESL. The interest rate is 10% per year. Year j (1) 1 2 345 MV, (2) $9000 8000 6000 2000 0 AOC, (3) $-2500 -2700 -3000 -3500 -4500
Digital Tech Dynamics purchased a new quality inspection system for $550,000. The estimated salvage value was $50,000 after 10 years. Currently, the expected remaining life is 7 years with an AOC of $45,000 per year and an estimated salvage value of $40,000. The new president has recommended early replacement of the system with one that costs $450,000 and has a 12-year economic service life, a $35,000 salvage value, and an estimated AOC of $50,000 per year. If the MARR for the corporation is 12% per year, use factor-based relations to determine the minimum trade-in value necessary now to make the president's replacement economically advantageous. The minimum trade-in value necessary now to make the president's replacement economically advantageous is $
Stahmann Products paid $350,000 for a numerical controller and had it installed at a cost of $50,000. The recovery period was 7 years with an estimated salvage value of 10% of the original purchase price. Stahmann sold the system 4 years after it was purchased for $45,000. State the numerical values for the following: remaining life at sale time, market value at sale time, and book value at sale time if 65% of the basis had been depreciated. The remaining life at sale time is years. The market value at sale time is $ . The book value at sale time if 65% of the basis has been depreciated is $ .
Part a.) An engineer with Calahan Technologies calculated the AW of cost values shown for a presently owned machine using estimates she obtained from the vendor and company records. A challenger has an economic service life of 7 years with an AW of $-86,000 per year. Assume that all future costs remain as estimated and the challenger's technology will definitely replace that of the defender within 5 years. When should the company purchase the challenger? Retention Period, Years AW of Costs, $ per Year -92,000 2 -81,000 -87,000 4 -89,000 5 -95,000 Part b.) The costs and revenue projections for a new product made on the machine from Part a.) are estimated below. What is the estimated profit at a production rate of 25% above breakeven? Fixed cost = $592,000 per year Production cost per unit = $198 Revenue per unit = $330

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