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 $58,000 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 11 percent per year. Operating costs for the propane model will initially be $10,000 over the first year, rising by 11 percent per year. Should Chatham Automotive replace the forklifts now? Click the icon to view the table of compound interest factors for discrete compounding periods when i = 7%. Chatham Automotive should not replace the forklifts now since the minimum total EAC for the electric forklifts is $, which is lower than $ (Round to the nearest dollar as needed.) the minimum total EAC for the propane forklifts.
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 $58,000 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 11 percent per year. Operating costs for the propane model will initially be $10,000 over the first year, rising by 11 percent per year. Should Chatham Automotive replace the forklifts now? Click the icon to view the table of compound interest factors for discrete compounding periods when i = 7%. Chatham Automotive should not replace the forklifts now since the minimum total EAC for the electric forklifts is $, which is lower than $ (Round to the nearest dollar as needed.) the minimum total EAC for the propane forklifts.
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter17: Long-term Investment Analysis
Section: Chapter Questions
Problem 4E
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Transcribed Image Text: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 $58,000 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 11
percent per year. Operating costs for the propane model will initially be $10,000 over the first year, rising by 11 percent per year. Should Chatham Automotive replace the forklifts now?
Click the icon to view the table of compound interest factors for discrete compounding periods when i = 7%.
Chatham Automotive should not replace the forklifts now since the minimum total EAC for the electric forklifts is $, which is lower than $
(Round to the nearest dollar as needed.)
the minimum total EAC for the propane forklifts.
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