A machine purchased 3 years ago for $140,000 is now too slow to satisfy the demand of the customers. It can be upgraded now for$79000 or sold to a smaller company internationally for $31000. The upgraded machine will have an annual operating cost of $80000per year and a $30000 salvage value in 3 years. If upgraded, the presently owned machine will be retained for only 3 more years,then replaced with a machine to be used in the manufacture of several other product lines. The replacement machine, which will servethe company now and for a maximum of 8 years, costs $210000. Its salvage value will be $44000 for years 1 through 5; $20,000 after6 years; and $10,000 thereafter. It will have an estimated operating cost of $45,000 per year. Perform an economic analysis at 12.00%per year using a specified 3-year planning horizon.a) Determine if the current machine should be replaced now or 3 years from now.b) Once decided, determine the equivalent AW for the next three years.a) The current machine should be replaced three years from nowb) The equivalent AW for the next three years is $ -99588 ×

1.Summary of the Issue with the Current Machine (if kept for an additional three years):$140,000 was…

Answered: A machine purchased 3 years ago for…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Salim Service company owns several taxis that were purchased four years ago for $27000 each. The current market value is $10000 each. If they are kept for another 6 years, they can be sold for $2000 each. The annual maintenance cost per cab is $900 a year. Salim Service is looking at replacing the cabs with the option to lease new cabs at an annual cost of $9000 per year per cab which includes free maintenance. How much more would it cost them per year to switch to leasing? Assume an interest rate of 9%.
A machine that cost $120,000 3 years ago can be sold now for $51,500. Its market value is expected to be $40,000 and $20,000 1 year and 2 years from now, respectively. Its operating cost was $18,000 for the first 3 years of its life, but the M&O cost is expected to be $23,000 for the next 2 years. A new improved machine that can be purchased for $135,500 will have an economic life of 5 years, and an operating cost of $9,000 per year, and a salvage value of $32,000 whenever it is replaced. At an interest rate of 10% per year, determine if the presently owned machine should be replaced now, 1 year from now, or 2 years from now. The annual worth of the existing machine one year from now is $- 50500 O. the annual worth of the existing machine two years from now is $- 30,500 . and the annual worth of the new machine is $-112,500 The presently owned machine should be replaced now 13
An independent contractor for a transportation company needs to determine whether she should upgrade the vehicle she currently owns or trade her vehicle in to lease a new vehicle. If she keeps her vehicle, she will need to invest in immediate upgrades that cost $5,000 and it will cost $1,500 per year to operate at the end of year that follows. She will keep the vehicle for 4 years; at the end of this period, the upgraded vehicle will have a salvage value of $4,000. Alternatively, she could trade in her vehicle to lease a new vehicle. She estimates that her current vehicle has a trade-in value of $10,000 and that there will be $4,500 due at lease signing. She further estimates that it will cost $3,000 per year to lease and operate the vehicle. The independent contractor's MARR is 12%. Compute the EUAC of both the upgrade and lease alternatives using the insider perspective. EUAC(keep)$ _____ EUAC(lease)$ _____ What alternative should the independent contractor choose: a. either…
A specialty concrete mixer used in construction was purchased for $300,000 7 years ago. Its annual O&M costs are $105,000. At the end of the 8-year planning horizon, the mixer will have a salvage value of $5,000. If the mixer is replaced, a new mixer will require an initial investment of $375,000 and at the end of the 8-year planning horizon, the new mixer will have a salvage value of $45,000. Its annual O&M cost will be only $40,000 due to newer technology. Use an EUAC measure and a MARR of 15% to see if the concrete mixer should be replaced if the old mixer is sold for its market value of $65,000. Solve, a. Use the cash flow approach (insider’s viewpoint approach). b. Use the opportunity cost approach (outsider’s view point approach).
A contractor has a 4-year concrete mixer whose first cost was $6,000, having 3 more years to live before being scrapped and sold at $801. Itcould now be sold for $11,922. It has an annual cost for operation and maintenance of $9,352. Its replacement is being proposed with a newmachine whose first cost will be $8,000 having a life of 9 years and salvage value $1,600. It has an operating cost of $800 per year andmaintenance cost of $320 per year. Ifthe interest is 20% cpd-a, what is the Annual Equivalent Cost of the Old Machine? 14,792
A machine that cost $120,000 3 years ago can be sold now for $52,750. Its market value is expected to be $40,000 and $20,000 1 year and 2 years from now, respectively. Its operating cost was $18,000 for the first 3 years of its life, but the M&O cost is expected to be $23,000 for the next 2 years. A new improved machine that can be purchased for $136,750 will have an economic life of 5 years, and an operating cost of $9,000 per year, and a salvage value of $32,000 whenever it is replaced. At an interest rate of 10% per year, determine if the presently owned machine should be replaced now, 1 year from now, or 2 years from now. The annual worth of the existing machine one year from now is $- now is $- ], and the annual worth of the new machine is $- The presently owned machine should be replaced (Click to select) the annual worth of the existing machine two years from
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Last year, a decision was made to keep the same equipment in lieu of buying new equipment. The old equipment's trade-in value last year was $4000 and its value this year is $2000. The operating cost was $700 last year. If bought last year, the new equipment would have cost $11K, the salvage value after 8 years would be $2000, and it would have an annual operating cost of $4000. If bought last year, what would have been the EUAC of the new equipment (in dollars) at 17% interest rate per year? (provide your answer in the box as a negative value if you arrive at costs) What would have been the correct decision? (provide your answer and justification in your pdf file submission)
An equipment was bought for P1 500 000 and has a salvage value of P600 000 at the end of its life. If the book value of the equipment is P870 000 at the end of two years, find the life span using Sum of Years Digit?
The AW values for retaining a presently owned machine for additional years are shown in the table. Note that the values represent the AW amount for each of the n years that the asset is kept, i.e., if it is kept 5 more years, the annual worth is $-95,000 for each of the 5 years. Assume that future costs remain as estimated for the replacement study and that used machines like the one presently owned will always be available. (a) What is the ESL and associated AW of the defender at a MARR of 12% per year? (b) A challenger with an ESL of 7 years and an AWC = $-87,000 per year has been identified. Which AW will be less for the respective ESL periods? Retention Period, Years AW Value, $ per Year 1 -80,000 -93,000 3. -82,000 4 -92,000 -95,000 a) The ESL of the defender is year(s) with the lowest AW of S b) The defender has the lower AW at S for n equal to
Because it fumes at room temperatures, hydrochloric acid creates a very corrosive work environment. A machine, working in that environment, is deteriorating fast and can be used for only 1 more year, at which time it will be scrapped with no salvage value. It was purchased 3 years ago for $88,000; its operating cost for the next year is expected to be $53,000. A more corrosion-resistant challenger will cost $226,000 with an operating cost of $48,000 per year. It is expected to have a $60,000 salvage value after its 10-year ESL. At an interest rate of 15% per year, what minimum replacement value would render the challenger attractive?

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