The following pair of assets differ only in the MARR. The problem asks you to determine the effect of this difference on the economic life and to explain the result. All assets de of current value each year. Installation costs are zero for all assets. Further data concerning the four pairs of assets are given in the table that follows. Asset A B First Cost $120,000 $120,000 Initial Operating Cost $30,000 $30,000 Rate of Operating Cost Increase 12.5%/year 12.5%/year MARR 5% 25% D

The following pair of assets differ only in the MARR. The problem asks you to determine the effect of this difference on the economic life and to explain the result. All assets de of current value each year. Installation costs are zero for all assets. Further data concerning the four pairs of assets are given in the table that follows. Asset A B First Cost $120,000 $120,000 Initial Operating Cost $30,000 $30,000 Rate of Operating Cost Increase 12.5%/year 12.5%/year MARR 5% 25% D

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

The following pair of assets differ only in the MARR. The problem asks you to determine the effect of this difference on the economic life and to explain the result. All assets decline in value by 20 percent
of current value each year. Installation costs are zero for all assets. Further data concerning the four pairs of assets are given in the table that follows.
Initial Operating
Cost
First Cost
$120,000
$30,000
$120,000
$30,000
a. Determine the economic lives for assets A and B.
Asset
A
B
Rate of Operating
Cost Increase
12.5%/year
12.5%/year
MARR
5%
25%

EAC
0
1
c. Explain the differe
The economic life is
shorter
longer
the same
16
G
etween A and B.
longer when the MARR is higher.

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Step 1: Introduction of economic life

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Step 2: Computing economics life of A

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Step 3: Computing economics life of B

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Step 4: Explaining difference in economic life between A and B.

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