Answered: Mary O’Leary’s company ships fine wool…

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

A) Mary O’Leary’s company ships fine wool garments from County
Cork, Ireland. Five years ago she purchased some new automated
packing equipment having a first cost of $125,000. The annual costs
for operating, maintenance, and insurance, as well as market value
data for each year of the equipment’s 10-year useful life are as
follows.

B) Now Mary is looking at the remaining 5 years of her investment in
this equipment. What is the marginal cost for each of the remaining
5 years? When, if at all, should Mary replace this packing equipment
with a new asset that has a minimum EUAC of $110,000?

Year
n
1
2
3
4
5
6
7
8
9
10
Annual Costs in Year n for
Operating Maintenance
$16,000
$ 5,000
20,000
10,000
24,000
15,000
28,000
20,000
32,000
25,000
36,000
30,000
35,000
40,000
45,000
50,000
40,000
44,000
48,000
52,000
Insurance
$17,000
16,000
15,000
14,000
12,000
11,000
10,000
10,000
10,000
10,000
Market Value
in Year n
$80,000
78,000
76,000
74,000
72,000
70,000
68,000
66,000
64,000
62,000

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