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 $9,000. 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 8 percent. Operating costs for the electric model will be $19,000 this year, rising by 12 percent per year. Operating costs for the propane model will initially be $11,000 over the first year, rising by 12 percent per year. Should Chatham Automotive replace the forklifts now? E Click the icon to view the table of compound interest factors for discrete compounding periods when i = 8%.

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
icon
Related questions
Question
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
$9,000.
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 8 percent. Operating
costs for the electric model will be $19,000 this year, rising by 12 percent per year. Operating costs for the propane model will initially be $11,000 over the first year,
rising by 12 percent per year. Should Chatham Automotive replace the forklifts now?
E Click the icon to view the table of compound interest factors for discrete compounding periods when i= 8%.
Chatham Automotive should not replace the forklifts now since the minimum total EAC for the electric forklifts is $ 21,520, which is lower than $ 25,265 , the
minimum total EAC for the propane forklifts.
(Round to the nearest dollar as needed.)
Transcribed Image Text: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 $9,000. 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 8 percent. Operating costs for the electric model will be $19,000 this year, rising by 12 percent per year. Operating costs for the propane model will initially be $11,000 over the first year, rising by 12 percent per year. Should Chatham Automotive replace the forklifts now? E Click the icon to view the table of compound interest factors for discrete compounding periods when i= 8%. Chatham Automotive should not replace the forklifts now since the minimum total EAC for the electric forklifts is $ 21,520, which is lower than $ 25,265 , the minimum total EAC for the propane forklifts. (Round to the nearest dollar as needed.)
Expert Solution
steps

Step by step

Solved in 3 steps with 2 images

Blurred answer
Knowledge Booster
Savings
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:
9780190931919
Author:
NEWNAN
Publisher:
Oxford University Press
Principles of Economics (12th Edition)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education