Engineering Economy, Student Value Edition (17th Edition)
17th Edition
ISBN: 9780134838137
Author: William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher: PEARSON
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Question
Chapter 13, Problem 11P
To determine
Whether the firm should purchase or rent the machine.
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A new machine will cost $200,000. Its maximum useful life is 8 years. The expected market value (MV) of the machine at the end of year 1 is $100,000, and it is expected to decline by $15,000 each year afterwards. The annual operating cost (AOC) is projected to be $75,000 during the first year of operation, and it is expected to rise by 15% every year afterwards. Assuming 11% minimum attractive rate of return, calculate the economic service life of the machine. Your calculations need to include a table with the following columns: Year, MV, AOC, Capital Recovery, Annual Worth (AW) of AOC, and Total AW. Illustrate your analysis with a properly labeled chart, featuring the number of years of service on the horizontal axis, and capital recovery, annual worth of the AOC, and total annual worth on the vertical axis (click to format the vertical axis and check the box “Values in reverse order” so that the axis displays rising cost as movement up). Please provide a written statement clearly…
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Chapter 13 Solutions
Engineering Economy, Student Value Edition (17th Edition)
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