ized. The loss of head due to friction for the 26-inch pipeline will be 67 feet. The energy of the water delivered to the turbine is valued at $84 per horsepower year, where horsepower h is the head in feet and F is the flow in cubic feet taxes amount to 3% of first cost. Operating and maintenance costs are essen- tially equal or all three plans. The interest rate is 12%. If all lines, including the one now in use, will be retired in 35 years with no salvage value, what is the comparable AE(i) costs of the three alternatives? h X FX 62.4 ÷ 550. In this equation, %3D per second. Insurance and 17.) A university is considering upgrading its computing capabilities. The com- puter that is now owned was purchased 2 years ago at a cost of $500,000. It was anticipated at the time of the purchase that annual operating costs would be $80,000, and that after 6 years of use the computer would be inadequate and therefore would be sold for $90,000. The existing unit has now a salvage value of $180,000 and, if retained for 4 more years, will have a salvage value of $40,000 at the end of that time. Its operating costs will increase at a rate of 3% per year from the current level of $80,000, and it will have to be supplement- ed immediately with a medium-size computer having initial cost, life, sal- vage value, and operating costs of $100,000, 5 years, $30,000, and $19,000, respectively. A new, larger computer with the desired capacity can be bought for $420,000. It is estimated that it will have a service life of 5 years, final salvage value of $120,000, and operating costs of $50,000 per year. As an alternative to these options, there is a possiblity of leasing a com- puter with sufficient capacity for a 4-year period. This alternative will require an initial payment of $10,000 and will have total lease costs of $140,000 payable at the beginning of each year. If the MARR is 12%, indicate the preferred alternative for a 4-year
ized. The loss of head due to friction for the 26-inch pipeline will be 67 feet. The energy of the water delivered to the turbine is valued at $84 per horsepower year, where horsepower h is the head in feet and F is the flow in cubic feet taxes amount to 3% of first cost. Operating and maintenance costs are essen- tially equal or all three plans. The interest rate is 12%. If all lines, including the one now in use, will be retired in 35 years with no salvage value, what is the comparable AE(i) costs of the three alternatives? h X FX 62.4 ÷ 550. In this equation, %3D per second. Insurance and 17.) A university is considering upgrading its computing capabilities. The com- puter that is now owned was purchased 2 years ago at a cost of $500,000. It was anticipated at the time of the purchase that annual operating costs would be $80,000, and that after 6 years of use the computer would be inadequate and therefore would be sold for $90,000. The existing unit has now a salvage value of $180,000 and, if retained for 4 more years, will have a salvage value of $40,000 at the end of that time. Its operating costs will increase at a rate of 3% per year from the current level of $80,000, and it will have to be supplement- ed immediately with a medium-size computer having initial cost, life, sal- vage value, and operating costs of $100,000, 5 years, $30,000, and $19,000, respectively. A new, larger computer with the desired capacity can be bought for $420,000. It is estimated that it will have a service life of 5 years, final salvage value of $120,000, and operating costs of $50,000 per year. As an alternative to these options, there is a possiblity of leasing a com- puter with sufficient capacity for a 4-year period. This alternative will require an initial payment of $10,000 and will have total lease costs of $140,000 payable at the beginning of each year. If the MARR is 12%, indicate the preferred alternative for a 4-year
Chapter1: Making Economics Decisions
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