The projected market value and M&O costs associated with a presently owned machine which is bought for $70,000 2 years ago and best challenger available are shown. Determine if and when the defender should be replaced with the outside vendor using an interest rate of 10% per year. Assume used equipment similar to the defender will always be available. Note: You need to use at least 1 Gradient, 1 Annuity and 1 Single amount to get full marks) Defender Challenger Year Market value M&O Cost Year Market M&O Cost $ $ per Year value $ per Year $ 0 55,000 0 110,000 1 40,000 -5,000 1 95,000 -3,000 2 25,000 -6,000 2 85,000 -3,000 3 15,000 -7,000 3 70,000 -3,000 4 10,000 -8,000 4 55,000 -4,000 5 50,000 -5,000 6 40,000 -6,000 By using Present worth evaluation in incremental B/C analysis, determine which of the following mutually exclusive projects should be selected where MARR is 7% per year and Do Nothing is not an option: A B C D Initial Investment at year 0, $ $800,000 $600,000 $400,000 $500,000 Initial Investment at year 2, $ $200,000 $300,000 $200,000 $150,000 Annual Benefit, S/Year $400,000 $250,000 $180,000 $210,000 Annual Disbenefit, $/Year $50,000 $40,000 $30,000 $45,000 Annual M&O costs, S/Year Life cycle $60,000 $50,000 $45,000 $30,000 7 years 7 years 14 years 14 years
The projected market value and M&O costs associated with a presently owned machine which is bought for $70,000 2 years ago and best challenger available are shown. Determine if and when the defender should be replaced with the outside vendor using an interest rate of 10% per year. Assume used equipment similar to the defender will always be available. Note: You need to use at least 1 Gradient, 1 Annuity and 1 Single amount to get full marks) Defender Challenger Year Market value M&O Cost Year Market M&O Cost $ $ per Year value $ per Year $ 0 55,000 0 110,000 1 40,000 -5,000 1 95,000 -3,000 2 25,000 -6,000 2 85,000 -3,000 3 15,000 -7,000 3 70,000 -3,000 4 10,000 -8,000 4 55,000 -4,000 5 50,000 -5,000 6 40,000 -6,000 By using Present worth evaluation in incremental B/C analysis, determine which of the following mutually exclusive projects should be selected where MARR is 7% per year and Do Nothing is not an option: A B C D Initial Investment at year 0, $ $800,000 $600,000 $400,000 $500,000 Initial Investment at year 2, $ $200,000 $300,000 $200,000 $150,000 Annual Benefit, S/Year $400,000 $250,000 $180,000 $210,000 Annual Disbenefit, $/Year $50,000 $40,000 $30,000 $45,000 Annual M&O costs, S/Year Life cycle $60,000 $50,000 $45,000 $30,000 7 years 7 years 14 years 14 years
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:The projected market value and M&O costs associated with a presently owned machine which is
bought for $70,000 2 years ago and best challenger available are shown. Determine if and when the
defender should be replaced with the outside vendor using an interest rate of 10% per year. Assume
used equipment similar to the defender will always be available. Note: You need to use at least 1
Gradient, 1 Annuity and 1 Single amount to get full marks)
Defender
Challenger
Year Market value M&O Cost
Year
Market
M&O Cost
$
$ per Year
value
$ per Year
$
0
55,000
0
110,000
1
40,000
-5,000
1
95,000
-3,000
2
25,000
-6,000
2
85,000
-3,000
3
15,000
-7,000
3
70,000
-3,000
4
10,000
-8,000
4
55,000
-4,000
5
50,000
-5,000
6
40,000
-6,000
By using Present worth evaluation in incremental B/C analysis, determine which of the following
mutually exclusive projects should be selected where MARR is 7% per year and Do Nothing is not an
option:
A
B
C
D
Initial Investment at year 0, $
$800,000
$600,000
$400,000
$500,000
Initial Investment at year 2, $
$200,000
$300,000
$200,000
$150,000
Annual Benefit, S/Year
$400,000
$250,000
$180,000
$210,000
Annual Disbenefit, $/Year
$50,000
$40,000
$30,000
$45,000
Annual M&O costs, S/Year
Life cycle
$60,000
$50,000
$45,000
$30,000
7 years
7 years
14 years
14 years
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