A machine purchased a year ago for $85,000 costs more to operate than anticipated. At the time of the purchase, it was expected tobe used for 10 years with annual maintenance costs of $22,000 and a salvage value of $10,000. However, last year, it incurred a cost$35000, which is expected to escalate to $36,400 this year and increase by $1400 each year thereafter. The market value is nowestimated to be $66000-$10000k, where k is the number of years since the machine was purchased. It is now estimated that themachine will be useful for a maximum of 4.00 more years. A replacement study is to be performed. Determine the values of P, n, AOCfor year 4.00 and S of this defender.The value of P is $The value of n isThe AOC for year 4.00 isThe value of S is $years.

Purchase price (P) = $85,000Original expected life (n) = 10 yearsOriginal annual maintenance =…

Answered: A machine purchased a year 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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A machine purchased 3 years ago for $140,000 is now too slow to meet growing demand. The machine can now be upgraded at a cost of $70,000 or sold to a small business for $40,000. The current machine will have an annual operating cost of $85,000. If upgraded, the currently owned machine will be in service for 3 years more and later it will be replaced with a machine that will be used in the manufacture of various lines of products. This replacement machine, which will serve the company now and for at least 8 years to come, will cost $220,000. Its salvage value will be $50,000 in years 1 through 5; $20,000 after 6 years, and $10,000 thereafter. This will have an estimated operating cost of $65,000 per year. The company asks you to carry out an economic analysis at 20% per year using a time horizon of 5 years. Should the company replace the machine it currently owns or should it do so in 3 years? What are the Equivalent Annual Values of each option? Make the cash flow diagram and the…
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)
A 5 year-old tooling kit that was purchased new for $9000 has a current market value of $4000 and expected 0&M costs of $3000, increasing by $1200 per year. Future market values are expected to decline by 25% annually (going forward). The kit can be used for another 3 years at most. The optimal replacement kit costs $8000 and has 0&M costs starting at $2500 per year, increasing by $2000 per year. Salvage value for the new kit at the end of the first year is $4000 and falls by $1000 per year thereafter (until zero). The new model kit will be needed indefinitely. Assume a unique minimum AEC~(15%) for both kits (both the current and replacement kit). The MARR is 15%. 1) What is the AECC• ? a) Less than 6925.70 b) 6925.70-6945.70 c) 6945.70-6965.70 ) d) 6965.70-6985.70 e) More than 6985.70
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Kermit bought a production line 5 years ago for $35,000. At that time it was estimated to have a service life of 10 years and salvage at the end of its service life of $10,000. Kermit's CFO recently proposed to replace the old line with a modern line expected to last 15 years and cost $95,000. This new line will provide $7,000 savings in annual operating and maintenance costs, and have a salvage value of $15,000 at the end of 15 years. The seller of the new line is willing to accept the old line as a trade-in for its current fair market value, which is $12,000. The CFO estimates that if the old line is kept for 5 more years, its salvage value will be $6,000. We are looking at performing a replacement analysis. The defender must be analyzed using a first cost of and a salvage value of for years. The challenger must be analyzed using a first cost of and a salvage value of for years. Enter the answers as 12345. DO NOT enter $ symbol or comma separators. DO NOT enter decimal places.
Four years ago, an industrial batch oven was purchased for $24,000. If sold now, the machine will bring $2500. If sold at the end of the year, it will bring $1500. Salvage value will decline by 20% each additional year. Annual operating costs for subsequent years are $3800 next year and then increase at 8% per year. A new machine will cost $49,000 with a 12-year economic life and have a $3000 salvage value. The operating cost will be $3000 as of the end of each year, with the $6000-per-year savings due to better quality control. If the firm's MARR is 10%, should the machine be purchased now? What is the defender's economic life? year(s) What is the AEC of the defender at its economic life? $ What is the AEC of the challenger at its economic life? $ Please choose your conclusion below:
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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Allen Construction purchased a crane 6 years ago for $130,000. They need a crane of this capacity for the next 5 years. Normal operation costs $35,000 per year. The current crane will have no salvage value at the end of 5 more years. Allen can trade in the current crane for its market value of $40,000 toward the purchase of a new one, which costs $150,000. The new crane will cost only $8,000 per year under normal operating conditions and will have a salvage value of $55,000 after 5 years. If MARR is 20%, determine which option is preferred. a) Use cash flow approach (insider's viewpoint approach) b) Use the opportunity cost approach (outsider's viewpoint approach)
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Sacramento Cab Company owns several taxis that were purchased for $25,000 each 4 years ago. The cabs’ current market value is $12,000 each, and if they are kept for another 6 years they can be sold for $2000 per cab. The annual maintenance cost per cab is $1000 per year. Sacramento Cab has been approached about a leasing plan that would replace the cabs. The leasing plan calls for payments of $6000 per year. The annual maintenance cost for each leased cab is $750 per year. Should the cabs be replaced if the interest rate is 10%?The local telephone company purchased four special pole hole diggers 8 years ago for $14,000 each. Owing to an increased workload, additional machines will soon be required.
Teduie company bought a new model of motor for its electric power generating plant in 2017. The useful life of the motor was 5 years and the investment was $30,000 in 2017's dollars. The following table shows the savings obtained through the project in actual dollars and the consumer price index numbers for the time period between 2017 and 2022: Price End of Year Savings Index 2017 250 2018 $10,000 250 $12,100 $14,641 $19,326.1 $23,384.6 2019 275 2020 302.5 2021 363 2022 399.3 If the inflation-free interest rate is 15%, determine whether the investment was worthwhile.

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