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Problem 1a: An electronics manufacturing company is considering the replacement of its main soldering machine (Defender) with a new and more efficient model (Challenger). The possible salvage values of the Defender machine, if sold in one of the years 0 to 5, and the maintenance costs for retaining the existing machine over its remaining useful life are given in the table below. Assume year O is the base year. • Notice the Defender salvage values decline at a constant rate of -18%/year (a declining geometric gradient) and the maintenance costs increase at a constant rate of 20%/year as the defender is retained from year to year. • The new replacement machine can be purchased now for $45,000. The salvage value if sold in years 1 to 8 and maintenance costs for switching over to the new machine are also given in the table below. Notice the Challenger salvage values decline at a constant rate of -10% / year (a declining geometric gradient) and the maintenance costs increase at a constant rate of 15% / year. • Both new and old equipment would provide similar benefits (revenues). • The company uses an annual inflation less MARR' = 10% to evaluate projects.

Problem 1a: An electronics manufacturing company is considering the replacement of its main soldering machine (Defender) with a new and more efficient model (Challenger). The possible salvage values of the Defender machine, if sold in one of the years 0 to 5, and the maintenance costs for retaining the existing machine over its remaining useful life are given in the table below. Assume year O is the base year. • Notice the Defender salvage values decline at a constant rate of -18%/year (a declining geometric gradient) and the maintenance costs increase at a constant rate of 20%/year as the defender is retained from year to year. • The new replacement machine can be purchased now for $45,000. The salvage value if sold in years 1 to 8 and maintenance costs for switching over to the new machine are also given in the table below. Notice the Challenger salvage values decline at a constant rate of -10% / year (a declining geometric gradient) and the maintenance costs increase at a constant rate of 15% / year. • Both new and old equipment would provide similar benefits (revenues). • The company uses an annual inflation less MARR' = 10% to evaluate projects.

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
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Problem 1a: An electronics manufacturing company is considering the replacement of its main soldering machine (Defender) with a new and more efficient model (Challenger). The possible salvage values of the Defender machine, if sold in one of the years 0 to 5, and the maintenance costs for retaining the existing machine over its remaining useful life are given in the table below. Assume year O is the base year. • Notice the Defender salvage values decline at a constant rate of -18%/year (a declining geometric gradient) and the maintenance costs increase at a constant rate of 20%/year as the defender is retained from year to year. • The new replacement machine can be purchased now for $45,000. The salvage value if sold in years 1 to 8 and maintenance costs for switching over to the new machine are also given in the table below. Notice the Challenger salvage values decline at a constant rate of -10%/year (a declining geometric gradient) and the maintenance costs increase at a constant rate of 15%/year. Both new and old equipment would provide similar benefits (revenues). The company uses an annual inflation less MARR' 10% to evaluate projects. ● Year (K) 0 (Now) 1 2 3 4 LO 5 6 7 8 Old Equipment (DEFENDER) Salvage Value if Sold in year k $25,000 $20,500 $16,810 $13,784 $11,303 $9,268 Maint. & Op. Costs Annual Equivalent Cost (AEC) if kept for k years $5,800 $12,800 $6,960 ? $8,352 $12,845 $10,022 $13,068 $12,027 $13,416 = New Equipment (CHALLENGER) Salvage Value if Sold in year k $45,000 $40,500 $36,450 $32,805 $29,525 $26,572 $23,915 $21,523 $19,371 Maint. & Op. Costs Annual Equivalent Cost (AEC) if kept for k years $4,200 $13,200 $4,830 $13,071 $5,555 $13,003 $6,388 $12,991 $7,346 $13,034 $8,448 $13,128 $9,715 $13,272 $11,172 $13,465 Determine the Annual Equivalent Cost (AEC) value of retaining the old equipment (Defender) for two years from now (End of Year 2).
Transcribed Image Text:Problem 1a: An electronics manufacturing company is considering the replacement of its main soldering machine (Defender) with a new and more efficient model (Challenger). The possible salvage values of the Defender machine, if sold in one of the years 0 to 5, and the maintenance costs for retaining the existing machine over its remaining useful life are given in the table below. Assume year O is the base year. • Notice the Defender salvage values decline at a constant rate of -18%/year (a declining geometric gradient) and the maintenance costs increase at a constant rate of 20%/year as the defender is retained from year to year. • The new replacement machine can be purchased now for $45,000. The salvage value if sold in years 1 to 8 and maintenance costs for switching over to the new machine are also given in the table below. Notice the Challenger salvage values decline at a constant rate of -10%/year (a declining geometric gradient) and the maintenance costs increase at a constant rate of 15%/year. Both new and old equipment would provide similar benefits (revenues). The company uses an annual inflation less MARR' 10% to evaluate projects. ● Year (K) 0 (Now) 1 2 3 4 LO 5 6 7 8 Old Equipment (DEFENDER) Salvage Value if Sold in year k $25,000 $20,500 $16,810 $13,784 $11,303 $9,268 Maint. & Op. Costs Annual Equivalent Cost (AEC) if kept for k years $5,800 $12,800 $6,960 ? $8,352 $12,845 $10,022 $13,068 $12,027 $13,416 = New Equipment (CHALLENGER) Salvage Value if Sold in year k $45,000 $40,500 $36,450 $32,805 $29,525 $26,572 $23,915 $21,523 $19,371 Maint. & Op. Costs Annual Equivalent Cost (AEC) if kept for k years $4,200 $13,200 $4,830 $13,071 $5,555 $13,003 $6,388 $12,991 $7,346 $13,034 $8,448 $13,128 $9,715 $13,272 $11,172 $13,465 Determine the Annual Equivalent Cost (AEC) value of retaining the old equipment (Defender) for two years from now (End of Year 2).
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