PROBLEM: A company that sells computers has proposed to a public utility company that it purchase a small electronic computer for 1,000,000 to replace ten calculating machines and their operators. An annual service maintenance contract for the computer will be provided at a cost of 100,000 per year. One operator will be required at a salary of 96,000 per year and one programmer at a salary of 144,000 per year. The estimated economic life of the computer is 10 years. The calculating machine costs 7,000 each when new, 5 years ago, and presently can be sold for 2,000 each. They have an estimated life of 8 years and an expected ultimate trade-in value of 1,000 each. Each calculating machine operator receives 84,000 per year. Fringe benefits for all labor cost 8% of annual salary. Annual maintenance costs on the calculating machines have been 500 each. Taxes and insurance on all equipment is 2% of the first cost per year. If capital costs the company about 25%, would you recommend the computer installation? (ANSWER: The calculators should be purchased)

PROBLEM: A company that sells computers has proposed to a public utility company that it purchase a small electronic computer for 1,000,000 to replace ten calculating machines and their operators. An annual service maintenance contract for the computer will be provided at a cost of 100,000 per year. One operator will be required at a salary of 96,000 per year and one programmer at a salary of 144,000 per year. The estimated economic life of the computer is 10 years. The calculating machine costs 7,000 each when new, 5 years ago, and presently can be sold for 2,000 each. They have an estimated life of 8 years and an expected ultimate trade-in value of 1,000 each. Each calculating machine operator receives 84,000 per year. Fringe benefits for all labor cost 8% of annual salary. Annual maintenance costs on the calculating machines have been 500 each. Taxes and insurance on all equipment is 2% of the first cost per year. If capital costs the company about 25%, would you recommend the computer installation? (ANSWER: The calculators should be purchased)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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