A critical machine in BHP Billiton's copper refining operation was purchased 7 years ago for $160,000. Last year a replacement study was performed with the decision to retain it for 3 more years. The situation has changed. The equipment is estimated to have a value of $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 to make 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 of 10% 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
A critical machine in BHP Billiton's copper refining operation was purchased 7 years ago for $160,000. Last year a replacement study was performed with the decision to retain it for 3 more years. The situation has changed. The equipment is estimated to have a value of $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 to make 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 of 10% 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
Chapter1: Making Economics Decisions
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Problem 1QTC
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Transcribed Image Text:A critical machine in BHP Billiton's copper refining operation was purchased 7 years ago for $160,000. Last year a replacement study
was performed with the decision to retain it for 3 more years. The situation has changed. The equipment is estimated to have a value
of $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 to
make 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 of
10% 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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