8. Your firm is considering two options to replace an aging compactor.Option #1 - Purchase a new compactor for $30,000. The new compactor is expected tolast six years and have a salvage value of $4,000.Option #2 - Purchase a used compactor for $15,800. The used compactor is expectedto last three years with no salvage value. (You assume that you would be able topurchase another used compacted at the beginning of year 3 that would have ananticipated lifespan of 3 years and would cost $18,500 with no salvage value. Hint:option 2 requires analyzing two pieces of equipment.)If the annual interest rate is 5%:a. What is the present worth cost of option #1?b. What is the present worth cost of option #2?Which alternative should be selected?'C.

Answered: a. What is the present worth cost of…

a. What is the present worth cost of option #1? b. What is the present worth cost of option #2? c. Which alternative should be selected?'

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

8. Your firm is considering two options to replace an aging compactor.
Option #1 - Purchase a new compactor for $30,000. The new compactor is expected to
last six years and have a salvage value of $4,000.
Option #2 - Purchase a used compactor for $15,800. The used compactor is expected
to last three years with no salvage value. (You assume that you would be able to
purchase another used compacted at the beginning of year 3 that would have an
anticipated lifespan of 3 years and would cost $18,500 with no salvage value. Hint:
option 2 requires analyzing two pieces of equipment.)
If the annual interest rate is 5%:
a. What is the present worth cost of option #1?
b. What is the present worth cost of option #2?
Which alternative should be selected?'
C.

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