4. A special-purpose machine is to be purchased at a cost of $30,000. The following tableshows the expected annual operating and maintenance cost and the salvage value for eachyear of service:Year of Service O&M Cost12345$5,000$6,500$10,000$12,500$14,800Market Value$25,800$16,000$10,000$5,000$0a) If the interest rate is 12%, what is the economic service life for this machine?b) The old machine (Defender) has remaining life of 3 years The current market value of itis $28,000 and the annual operational cost is $5,500. The value of the old machine isreduced by 5% each year while the operational costs increase by $1000 each year.Determine the economic service life of the old machine at an interest rate of 12%.c) If the old machine is to be replaced with the new machine when is the best time to do so?

To determine the economic service life of the new machine, we need to calculate the equivalent…

Answered: A special-purpose machine is to be…

A special-purpose machine is to be purchased at a cost of $30,000. The following table shows the expected annual operating and maintenance cost and the salvage value for each year of service:

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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St. Francis Cooperative purchased a P45 000.00 — pump for its irrigation project. Setup and installation cost amounted to P5000.00. Using the SYD method, economic life and salvage value was initially estimated to be 12 years and P3800.00, respectively. Due to poor maintenance and continuous exposure to the elements, a re-evaluation after five years indicated that the remaining economic life is only four years, with a salvage value of P2500.00. Find the book value of the pump for the seventh year. (Ans. P7865.40)
Which of the following statements is CORRECT about replacement analysis where service lives of defender and challenger are unequal? Group of answer choices If the asset will be needed indefinitely use a study period approach. If asset replacement is a one-time occurrence, use a study period approach. In the study period approach, longer study period is best for projects with definitive end. For projects that are needed for a specific number of years, assume “Repeat Replacement.”
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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 $11,000. Chatham is considering replacing them with propane models. New propane forklifts cost $59,000 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 $20,000 this year, rising by 13 percent per year. Operating costs for the propane model will initially be $12,000 over the first year, rising by 13 percent per year. Should Chatham Automotive replace the forklifts now? Click the icon to view the table of compound interest factors for discrete…
Chatham Automotive purchased new electric forklifts to move steel automobile parts two years ago. They cost $80,000 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 $10,000. Chatham is considering replacing them with propane models. New propane forklifts cost $59,000 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 7 percent. Operating costs for the electric model will be $18,000 this year, rising by 12 percent per year. Operating costs for the propane model will initially be $12,000 over the first year, rising by 12 percent per year. Should Chatham Automotive replace the forklifts now? What is the the minimum total EAC for the electric forklifts and…
A company bought a generating set (or Genset) years ago at P5M and is now fully depreciated. It plans to fix it at a cost of P2,731,809 so that it would still have 6-year life remaining and be annually operated at a cost of P1,511,338 and be sold by the end of its life at P400,000. Simultaneously, it will buy a medium-sized Genset at a cost of P2.5M to be operated at P0.25M annually, and a salvage value of P0.35M at the end of 7 years. Leasing is the 2nd option having an annual payment of P1.4M and the initial payment of P0.1M, lasting for 4 years. What is the Annual Equivalent Cost of the 1st Option when interest is 22% cpd.-annually?
A harvester was purchased 4 years ago for $100,000. The current market value is $45,000, which will decline as follows over the next 5 years: $40,000, $33,500, $28,000, $24,000, and $17,000. The O & M costs are estimated to be $16,000 this year. These costs are expected to increase by $5000 per year starting year 2. MARR = 10% The foregone interest in year 4 is _______________.
You purchased a machine four years ago at a cost of $5,000. It has a book value of $1,300. It can be sold now for $2,300, or it could be used for three more years, at the end of which time it would have no salvage value. Assuming it is kept for three more years, what is the amount of economic loss during this ownership?
PROBLEM NO. 2: A certain equipment costs P7,000 has an economic life "n" years and a salvage value of P350 at the end of "n" years. If the book value at the end of 4 years is equal to P2197.22, compute the economic life of the equipment using the Sum of the Years digit method. PROBLEM NO. 3:
Management of Plascencia Corporation is considering whether to purchase a new model 370 machine costing $464,000 or a new model 220 machine costing $405,000 to replace a machine that was purchased 10 years ago for $439,000. The old machine was used to make product 143L until it broke down last week. Unfortunately, the old machine cannot be repaired. Management has decided to buy the new model 220 machine. It has less capacity than the new model 370 machine, but its capacity is sufficient to continue making product 143L. Management also considered, but rejected, the alternative of simply dropping product 143L. If that were done, instead of investing $405,000 in the new machine, the money could be invested in a project that would return a total of $456,000. In making the decision to invest in the model 220 machine, the opportunity cost was:
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