The packing cooling tower that cools condensing water for a power plant progressively detcriorates and results in gradually rising costs due to reduced plant efficiency. These costs are treated as lump sums at the end of the year, as showm in Fig 3:6-The cost is zero for the first year and then increases $1000 per year until the packing is 16 years old, when replacement is mandatory. At a point 8 years into the life of the packing (just aſter the $7000. annual cost has been assessed), a decision is to be made on the plan for the next 8 years i.e., whether to replace the packing or to continue with the existing packing. Money can be borrowed at 9 percent interest, compounded annually. What is the maxinmum amount that could be paid for the packing in order to justify its replacement ?
The packing cooling tower that cools condensing water for a power plant progressively detcriorates and results in gradually rising costs due to reduced plant efficiency. These costs are treated as lump sums at the end of the year, as showm in Fig 3:6-The cost is zero for the first year and then increases $1000 per year until the packing is 16 years old, when replacement is mandatory. At a point 8 years into the life of the packing (just aſter the $7000. annual cost has been assessed), a decision is to be made on the plan for the next 8 years i.e., whether to replace the packing or to continue with the existing packing. Money can be borrowed at 9 percent interest, compounded annually. What is the maxinmum amount that could be paid for the packing in order to justify its replacement ?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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The packing cooling tower that cools condensing water for a power plant progressively detcriorates and results in gradually rising costs due to reduced plant efficiency. These costs are treated as lump sums at the end of the year, as showm in Fig 3:6-The cost is zero for the first year and then increases $1000 per year until the packing is 16 years old, when replacement is mandatory. At a point 8 years into the life of the packing (just aſter the $7000. annual cost has been assessed), a decision is to be made on the plan for the next 8 years i.e., whether to replace the packing or to continue with the existing packing. Money can be borrowed at 9 percent interest, compounded annually. What is the maxinmum amount that could be paid for the packing in order to justify its replacement ?
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