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 Asset A First Cost Cost $125,000 B $35,000 $35,000 Rate of Operating Cost Increase 12.5%/year 12.5%/year MARR 5% 25% $125,000 a. Determine the economic lives for assets A and B. b. Create a diagram showing the EAC(capital), the EAC(operating), and the EAC(total) for assets A and B. c. Explain the difference in economic life between A and B.

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 Asset A First Cost Cost $125,000 B $35,000 $35,000 Rate of Operating Cost Increase 12.5%/year 12.5%/year MARR 5% 25% $125,000 a. Determine the economic lives for assets A and B. b. Create a diagram showing the EAC(capital), the EAC(operating), and the EAC(total) for assets A and B. c. Explain the difference in economic life between A and B.

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter1: Introduction And Goals Of The Firm

Section: Chapter Questions

Problem 2.2CE

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