A firm owns a pressure vessel that it is contemplating replacing.The old pressure vessel has annual operating and maintenanceexpenses of $60,000 per year and it can kept for five more years,at which time it will have zero market value. It is believed that $20,000 could be obtained for the old pressure vessel if it weresold now. A new pressure vessel can be purchased for $110,000. The pressure vessel will have an market value of $50,000 in five years and will have annual operating andmaintenance expenses of $30, 000 per year. Using a before - taxMARR of 20% per year, determine whether or not the oldpressure vessel should be replaced.

The objective of the question is to determine whether the old pressure vessel should be replaced or…

Answered: A firm owns a pressure vessel that it…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Given the following marginal cost values for a given asset, determine the equivalent uniform annual cost for the first three years and identify the minimum cost life. Use an interest rate of 10%. Year Marginal cost of existing asset 1 $3,500 2 $3,150 3 $3,400
Chatham Automotive purchased new electric forklifts to move steel automobile parts two years ago. They cost $65,000 each, including the charging stand. In practice, it was found that they did not hold a charge as long as claimed by the manufacturer, so operating costs are very high. As a result, their current salvage value is about $9,000. Chatham is considering replacing them with propane models. New propane forklifts cost $58,000 each. After one year, they have a salvage value of $40,000, and thereafter decline in value at a declining-balance depreciation rate of 20 percent, as does the electric model from this time on. The MARR is 8 percent. Operating costs for the electric model will be $19,000 this year, rising by 12 percent per year. Operating costs for the propane model will initially be $11,000 over the first year, rising by 12 percent per year. Should Chatham Automotive replace the forklifts now? E Click the icon to view the table of compound interest factors for discrete…
A printing machine is bought at $1 million and is estimated to have a salvage value of $100,000 after 500,000 copies. The annual cost of renting the space for the business is $100,000, power cost per copy is $1.50, and maintenance and paper cost per copy is $3. The expected annual production of the machine is 100,000 copies. Annual interest is 12%. Determine: a. The annual operation and maintenace cost of the machine b. The annual depreciation of the machine. c. Production cost per copy. Show your solution.
Greenleaf Company is considering the purchase of a new set of air-electric quill units to replace an obsolete machine. The current machine has a market value of zero; however, it is in good working order, and it will last physically for at least an additional five years. The new quill units will perform the operation with so much more efficiency that the firm's engineers estimate that labor, material, and other direct costs will be reduced by $3,000 a year if the units are installed. The new set of quill units costs $10,000 delivered and installed, and its economic life is estimated to be five years with zero salvage value. The firm's MARR is 10%.(a) What is the investment required to keep the old machine?(b) Compute the cash flow to use in the analysis of each option.(c) If the firm uses the internal-rate-of-return criterion, would the analysis indicate that the firm should buy the new machine?
34 - Which of the following is incorrect regarding the economic life statement?A) It means economic service year.B) Operating costs do not increase with the wear and tear of machines.C) It is time to retire.D) The machine's service life is over.E) It means it's time to be taken out of service.
A machine costs $19,310 and is expected to have a scrap value of $2,991 whenever it is retired. Operating and Maintenance costs are $1,047 for the first year and expected to increase by $1,751 thereafter. If the MARR is 12%, determine the minimum equivalent uniform annual cost associated with the optimal economic life of the machine. The service life of this machine is 5 years. Note: round your answer to two decimal places, and do not include spaces, currency signs,
You have been asked to evaluate the profitability of building a new distribution center under the following conditions: 1. The proposal is for a distribution center costing $1,500,000. The facility has an expected useful life of 35 years and a net salvage value (net proceeds from its sale after tax adjustments) of $225,000. II. Annual savings (due to a better strategic location) of $227,000 are expected, annual maintenance and administrative costs will be $114,000, and annual income taxes are $43,000. Suppose that the firm's MARR is 12%. Determine the net present worth of the investment.
J&M Manufacturing plans on purchasing a new assembly machine for $30,000 to automate one of its current manufacturing operations. It will cost an additional $5,500 to have the new machine installed. With the new machine, J&M expects to save $11,000 in annual operating and maintenance costs. The machine will last five years with an expected salvage value of $6,000. a. How long will it take to recover the investment (plus installation cost)? The payback period is _______years. (Round up to the nearest whole number.) b. If J&M's interest rate is known to be 13%, determine the discounted payback period. The discounted payback period is _______years. (Round up to the nearest whole number.)
A particular chemical process deposits scale on the inside of pipes. The scale cannot be removed, but increasing the pumping pressure can maintain the flow through the narrower diameter. The pipe costs $20 per foot to install, and it has no salvage value when it is removed. The pumping costs are $8 per foot of pipe initially, and they increase annually by $5 per year starting in year 2. What is the economic life of the pipe if the interest rate is 12% ?
1. The Comil Corporation recently purchased a new machine for its factory operations at a cost of $390,875. The investment is expected to generate $125,000 in annual cash flows for a period of five years. The required rate of return is 12%. The old machine has a remaining life of five years. The new machine is expected to have zero value at the end of the five- year period. The disposal value of the old machine at the time of replacement is zero. What is the internal rate of return? A) 15% B) 16% C) 17% D) 18% 2. The Zeron Corporation wants to purchase a new machine for its factory operations at a cost of $380,000. The investment is expected to generate $125,000 in annual cash flows for a period of four years. The required rate of return is 12%. The old machine can be sold for $20,000. The machine is expected to have zero value at the end of the four-year period. What is the net present value of the investment? Would the company want to purchase the new machine? Income taxes are not…
Greenleaf Company is considering the purchase of a new set of air-electric quill units to replace an obsolete machine. The current machine has a market value of zero; however, it is in good working order, and it will last physically for at least an additional five years. The new quill units will perform the operation with so much more efficient that the firm's engineers estimate that labor, material, and other direct costs will be reduced by $3,000 a year if the units are installed. The new set of quill units costs $10,000 delivered and installed, and its economic life is estimated to be five years with zero salvage value. The firm's MARR is 10%.(a) What is the investment required to keep the old machine?(b) Compute the cash flow to use in the analysis of each option.(c) If the firm uses the internal-rate-of-return criterion, would the analysis indicatethat the firm should buy the new machine?
A)Two options of feed-water storage installation are being considered to serve over 20 years of useful life: Option 1: Build a 20,000-gallon tank on a tower. The cost of installing the tank and tower is estimated to be $170,000. The annual operating and maintenance cost after tax adjustment is estimated to be $2,000. The salvage value is estimated to be negligible. Option 2: Place a 20,000-gallon tank of equal capacity on a hill near the refinery. The cost of installing the tank on the hill, including the extra length of service lines, is estimated to be $120,000 with negligible salvage value. The annual operating and maintenance cost of the water tank is estimated to be $1,500 after tax adjustment. Because of the location, an additional investment of 13,000 in pumping equipment is required. The pumping equipment is expected to have a service life of 10 years with a salvage value of $2,000 at the end of that time. The annual operating and maintenance cost (including any incometax…

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