Question 2: A new bottle-capping machine costs $45 000, including $5 000 for installation. Operating and maintenance costs are expected to be $3 000 for the first year, increasing by $ 1 000 each year thereafter. The salvage value is calculated by straight-line depreciation where a value of 0 is assumed at the end of the service life. a) Construct a spreadsheet that computes the equivalent annual cost (EAC) for the bottle capper. What is the economic life if the expected service life is 6, 7, 8, 9 or 10 years? Interest is 12%. / b) How sensitive is the economic life to the different length of service life? Construct a sensitivity graph to illustrate this point.

Question 2: A new bottle-capping machine costs $45 000, including $5 000 for installation. Operating and maintenance costs are expected to be $3 000 for the first year, increasing by $ 1 000 each year thereafter. The salvage value is calculated by straight-line depreciation where a value of 0 is assumed at the end of the service life. a) Construct a spreadsheet that computes the equivalent annual cost (EAC) for the bottle capper. What is the economic life if the expected service life is 6, 7, 8, 9 or 10 years? Interest is 12%. / b) How sensitive is the economic life to the different length of service life? Construct a sensitivity graph to illustrate this point.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Please solve without using excel, solve using formulas or tables
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The economic service life of an asset is the number of years at which the EUAC is _____________. a) minimum b) maximum c) equal to 1 d) equal to 0
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