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.
Chapter1: Making Economics Decisions
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Transcribed Image Text: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.
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