Georgia Ceramic Company has an automatic glaze sprayer that has been used for the past 10 years. The sprayer can be used for another 10 years and will have a zero salvage value at that time. The annual operating and maintenance costs for the sprayer amount to $15,000 per year. Due to an increase in business, a new sprayer must be purchased, either in addition to or as a replacement for the old sprayer.Option 1: if the old sprayer is retained, a new, smaller capacity sprayer will be purchased at a cost of $48,000; this new sprayer will have a $5,000 salvage value in 10 years and an annual operating and maintenance costs of $12,000. The old sprayer has a current market value of $6,000.Option 2: if the old sprayer is sold, a new sprayer of larger capacity will be purchased for $84,000. This sprayer will have a $9,000 salvage value in 10 years and annual operating and maintenance costs of $24,000.Which option should be selected at MARR = 12%.

Given: Interest rate (i)=12% Number of years(n)= 10

Answered: Georgia Ceramic Company has an…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

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Georgia Ceramic Company has an automatic glaze sprayer that has been used for the past 10 years. The sprayer can be used for another 10 years and will have a zero salvage value at that time. The annual operating and maintenance costs for the sprayer amount to $15,000 per year. Due to an increase in business, a new sprayer must be purchased, either in addition to or as a replacement for the old sprayer.

Option 1: if the old sprayer is retained, a new, smaller capacity sprayer will be purchased at a cost of $48,000; this new sprayer will have a $5,000 salvage value in 10 years and an annual operating and maintenance costs of $12,000. The old sprayer has a current market value of $6,000.
Option 2: if the old sprayer is sold, a new sprayer of larger capacity will be purchased for $84,000. This sprayer will have a $9,000 salvage value in 10 years and annual operating and maintenance costs of $24,000.

Which option should be selected at MARR = 12%.

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