A piece of equipment has a first cost of $175,000, a maximum useful life of 7 years, and a market (salvage) value described by the relation S = 120,000 -13,000k, where k is the number of years since it was purchased. The salvage value cannot go below zero. The AOC series is estimated using AOC = 60,000 +15,000k. The interest rate is 10% per year. Determine the economic service life and the respective AW. The economic service life is 3 year(s) and the AW value is $

A piece of equipment has a first cost of $175,000, a maximum useful life of 7 years, and a market (salvage) value described by the relation S = 120,000 -13,000k, where k is the number of years since it was purchased. The salvage value cannot go below zero. The AOC series is estimated using AOC = 60,000 +15,000k. The interest rate is 10% per year. Determine the economic service life and the respective AW. The economic service life is 3 year(s) and the AW value is $

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 satisfy the demand of the customers. It can be upgraded now for $81,000 or sold to a smaller company Internationally for $42000. The upgraded machine will have an annual operating cost of $87,000 per year and a $32,000 salvage value in 3 years. If upgraded, the presently owned machine will be retalned 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 serve the company now and for a maximum of 8 years, costs $217,000. Its salvage value will be $52.000 for years 1 through 5: $20,000 after 6 years; and $10,000 thereafter. It will have an estimated operating cost of $45,000 per year. Perform an economic analysis at 14% 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 equlvalent AW for the next three years. a) The…
As a project engineer, you received the AW analysis below from the finance department. It is for a new piece of equipment you ordered some months ago. You were told the interest rate used was 10% per year, but no first cost or projected salvage value was provided and you want to know them. Determine the values of P and S using the AW values for the year 3. Note: The AW values are equivalent values through the given year, not costs for the single year. Years Retained AW of First Cost, $ AW of Operating Cost, $ per Year AW of Salvage Value, $ 1 -51,700 -15,000 35,000 234 -27,091 -17,000 13,810 -18,899 -19,000 6,648 -14,827 -21,000 4,309 5 -12,398 -23,000 2,457 The value of P is $ 25,149.07 and the value of S is $ 8,853.89 Х
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