A pump has failed in a facility that will be completely replaced in three years. A brass pump costing $6,000 installed will last three years. However, a used stainless-steel pump that should last three more years has been sitting in the maintenance shop for a year. The pump cost $13,000 when it was new. The accountants say the pump is now worth $7,000. The maintenance supervisor says that it will cost an extra $500 to reconfigure the pump for the new use, or that he could sell it used (as is) for $4,000. (a) What is the net benefit or net cost of installing the stainless-steel pump? Of installing the brass pump? (b) Which option is better? (c) What is the opportunity cost for this set of options?

A pump has failed in a facility that will be completely replaced in three years. A brass pump costing $6,000 installed will last three years. However, a used stainless-steel pump that should last three more years has been sitting in the maintenance shop for a year. The pump cost $13,000 when it was new. The accountants say the pump is now worth $7,000. The maintenance supervisor says that it will cost an extra $500 to reconfigure the pump for the new use, or that he could sell it used (as is) for $4,000. (a) What is the net benefit or net cost of installing the stainless-steel pump? Of installing the brass pump? (b) Which option is better? (c) What is the opportunity cost for this set of options?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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