Q1- A West Virginia coal mining operation has installed an in-shaft monitoring systemfor oxygen tank and gear readiness for emergencies. Based on maintenance patternsfor previous systems, costs are minimal for the first few years, increase for a timeperiod, and then level off. Maintenance costs are expected to be $175,000 in year 3,$200,000 in year 4, and amounts increasing by $25,000 per year through year 6 andremain constant thereafter for the expected 10-year life of this system. If similarsystems will replace the current one, determine the perpetual equivalent annualmaintenance cost at i=10% per year.

Solution : Let us first draw the cash flow table and calculate the present value of cost Year…

Answered: virgin mining operation ing system for…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Two equipments A and B have initial costs of $100,000 and $120,000 and expected to generate annual savings during the first year of $88,000 and $98,000 respectively. The value of these annual savings is expected to increase by 10% per year (over previous period). Assume service life of 2 years, operating hours per year of 4500, Determine the $ savings/ hour for each equipment and select the optimal equipment based on your results. Use i = 10%.
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