Contemporary Engineering Economics (6th Edition)
6th Edition
ISBN: 9780134105598
Author: Chan S. Park
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Question
Chapter 14, Problem 11P
To determine
Replacement analysis.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
A construction firm purchased a used crane 2 years ago for $445,000. Its operating cost is $325,000 per year and it's expected
salvage value 3 years from now is $145,000. The firm's CEO is considering replacing the presently owned used crane with a brand
new crane with a much higher load limit which will cost $1.5 million. The operating cost of the new crane will be $260,000 per year, but
its higher load limit will allow the contractor to generate extra revenue that is expected to amount to $525,000 per year. The new
crane can probably be sold for $850,000 3 years from now. You have been asked to determine how much the presently owned crane
would have to be worth on the open market today for the annual worth (AW) values of the two machines to be the same over a 3-year
planning period. The contractor's MARR is 9% per year.
The presently owned crane should be worth $
Con the open market.
Hayden Inc. has a number of copiers that were bought four years ago for $27,000. Currently maintenance costs $2,700 a year,
but the maintenance agreement expires at the end of two years, and thereafter, the annual maintenance charge will rise to
$8,700. The machines have a current resale value of $8,700, but at the end of year 2, their value will have fallen to $4,200. By
the end of year 6, the machines will be valueless and would be scrapped.
Hayden is considering replacing the copiers with new machines,that would do essentially the same job. These machines cost
$32,000, and the company can take out an eight-year maintenance contract for $1,000 a year. The machines would have no
value by the end of the eight years and would be scrapped.
Both machines are depreciated using seven-year straight-line depreciation, and the tax rate is 40%. Assume for simplicity that
the inflation rate is zero. The real cost of capital is 7%.
a. Calculate the equivalent annual cost, if the copiers are: (i)…
Gordon Inc. has a number of copiers that were bought four years ago for $20,000. Currently maintenance costs $2,000 a year, but the maintenance agreement expires at the end of two years and thereafter the annual maintenance charge will rise to $8,000. The machines have a current resale value of $8,000, but at the end of year 2 their value will have fallen to $3,500. By the end of year 6 the machines will be valueless and would be scrapped. Gordon is considering replacing the copiers with new machines that would do essentially the same job. These machines cost $25,000, and the company can take out an eight-year maintenance contract for $1,000 a year. The machines have no value by the end of the eight years and would be scrapped. Both machines are depreciated by using seven-year MACRS, and the tax rate is 35 percent. Assume for simplicity that the inflation rate is zero. The real cost of capital is 7 percent. When should Gordon replace its copiers, now, the end of year 2, or the end of…
Chapter 14 Solutions
Contemporary Engineering Economics (6th Edition)
Ch. 14 - Prob. 1PCh. 14 - Prob. 2PCh. 14 - Prob. 3PCh. 14 - Prob. 4PCh. 14 - Prob. 5PCh. 14 - Prob. 6PCh. 14 - Prob. 7PCh. 14 - Prob. 8PCh. 14 - Prob. 9PCh. 14 - Prob. 10P
Ch. 14 - Prob. 11PCh. 14 - Prob. 12PCh. 14 - Prob. 13PCh. 14 - Prob. 14PCh. 14 - Prob. 15PCh. 14 - Prob. 16PCh. 14 - Prob. 17PCh. 14 - Prob. 18PCh. 14 - Prob. 19PCh. 14 - Prob. 20PCh. 14 - Prob. 21PCh. 14 - Prob. 22PCh. 14 - Prob. 23PCh. 14 - Prob. 24PCh. 14 - Prob. 25PCh. 14 - Prob. 26PCh. 14 - Prob. 27PCh. 14 - Prob. 28PCh. 14 - Prob. 29PCh. 14 - Prob. 30PCh. 14 - Prob. 31PCh. 14 - Prob. 32PCh. 14 - Prob. 33PCh. 14 - Prob. 34PCh. 14 - Prob. 35PCh. 14 - Prob. 36PCh. 14 - Prob. 37PCh. 14 - Prob. 38PCh. 14 - Prob. 39PCh. 14 - Prob. 40PCh. 14 - Prob. 41PCh. 14 - Prob. 42PCh. 14 - Prob. 43PCh. 14 - Prob. 44PCh. 14 - Prob. 45PCh. 14 - Prob. 46PCh. 14 - Prob. 47PCh. 14 - Prob. 48PCh. 14 - Prob. 49PCh. 14 - Prob. 1STCh. 14 - Prob. 2STCh. 14 - Prob. 3ST
Knowledge Booster
Similar questions
- XYZ Company purchased a machine six years ago for $350,000. Last year a replacement study was performed with the decision to retain the machine for 2 more years. However, this year the situation has changed. The machine is estimated to have a value of only $8,000 now and if it is to be kept in service, upgrading at a cost of $50,000 will be necessary to make it useful for up to 2 more years. Operating cost is expected to be $10,000 the first year and $15,000 the second year, with no salvage value at all. Alternatively, the company can purchase a new machine with an ESL of 7 years, no salvage value, and an equivalent annual cost of $ -55,540 per year. The MARR is 10% per year. Using the estimates above, determine a) When the company should replace the upgraded machine?arrow_forwardSolve step by step detailed answerarrow_forwardHayden Inc. has a number of copiers that were bought four years ago for $39,000. Currently maintenance costs $3,900 a year, but the maintenance agreement expires at the end of two years, and thereafter, the annual maintenance charge will rise to $9.900. The machines have a current resale value of $9.900, but at the end of year 2, their value will have fallen to $5,400 By the end of year 6 the machines will be valueless and would be scrapped. Hayden is considering replacing the copiers with new machines that would do essentially the same job. These machines cost $34,000, and the company can take out an eight year maintenance contract for $1,900 a year. The machines would have no value by the end of the eight years and would be scrapped. Both machines are depreciated using seven-year straight-line depreciation, and the tax rate is 35%. Assume for simplicity that the inflation rate is zero, The real cost of capital is 7% a. Calculate the equivalent annual cost, if the copiers are: (1)…arrow_forward
- Please solve without using excel, solve using formulas or tablesarrow_forwardAn equipment cost $90.000 initially. The market value the first year was 80,000 and has been declining at the rate of $6.000 yearly. The O & M costs in year 1 were $7.000 and have been increasing by $2.000 from year 2. Determine the minimum cost life of this equipment for a MARR of 10 %. Based on the chart below, a. what is the economic life of this piece of equipment. b. What is the minimum economic cost? OM cost PWCost Year Cost Salvage EUAC 90000 1 7000 $96,363.64 80000 ($26,000.00) 9000 $103,801.65 74000 (524.571.43) 3 11000 $112,066.12 68000 ($24.519.64) 4 13000 $120,945.29 62000 ($24.795.52) 15000 $130,259.11 56000 ($25,189.37) 6 17000 $139,855.17 50000 (525.631.41) 7 19000 $149.605.17 44000 (526.091.88) 8 21000 $159,401.83 38000 ($26,556.05) 9. 23000 $169,156.07 32000 ($27,015.85) 10 25000 $178,794.65 26000 (527.466.63) O a. 6 years b. $27,466.63 O a. 8 years b. $80.000 O a. 3 years b. $25,519.64 O a. 10 years b. $24.664.99arrow_forwardDBS Builders Pte Ltd purchased an asphalt paver eight years ago for $280,000. The estimated operation and maintenance (O&M) costs for the next three years are $56,000, $68,000, and $82,000, respectively. The asphalt paver can be sold for $65,000 now, for $57,000 next year, for $45,000 two years from now, and for $28,000 three years from now. 4. The latest asphalt paver in the market costs $290,000 and has an estimated service life of five years. The salvage value is estimated to be $50,000 after five years. The expected annual O&M costs will be $6,000 for the first year and increase by $3,800 per year thereafter. If a before-tax minimum attractive rate of return (MARR) of 12% is estimated, what replacement decision should DBS Builders make?arrow_forward
- Julie’s Bakeshop bought a loaf bread machine for P500,000 on June 1, 2010. It is estimated that it will have a useful life of 10 years, a scrap value of P10,000, production of 400,000 loaves of bread and working hours of 150,000. The company uses the machine for 15,000 hours in 2010 and 20,000 hours in 2011. The machine produces 40,000 loaves in 2010 and 50,000 loaves in 2011. Compute the depreciation in 2011 using (a) output method (b) working hours/service method.arrow_forwardChatham Automotive purchased new electric forklifts to move steel automobile parts two years ago. These cost $75 000 each, including the charging stand. In practice, it was found that they did not hold a charge as long as claimed by the manufacturer, so operating costs are very high. This also results in their currently having a salvage value of about $10 000. Chatham is considering replacing them with propane models. The new ones cost $58000. After one year, they have a salvage value of $40 000, and thereafter decline in value at a declining-balance depreciation rate of 20 percent, as does the electric model from this time on. The MARR is 8 percent. Operating costs for the electric model are $20 000 over the first year, rising by 12 percent per year. Operating costs for the propane model will initially be $10 000 over the first year, rising by 12 percent per year. Should Chatham Automotive replace the forklifts now?arrow_forwardThe Delta firm intends to buy a device called machine X. Machine X would cost $25,000 and have little salvage value after 10 years of use. The machine is anticipated to bring around $10,000 annually. Do the simple payback period calculation.arrow_forward
- A certain machine has a initial cost of 50,000 and a book a value of 15,811.39 after five years. Find the salvage value of the machine if has an economic life of 10 years?arrow_forwardK70.arrow_forwardPROBLEM NO. 2: A certain equipment costs P7,000 has an economic life "n" years and a salvage value of P350 at the end of "n" years. If the book value at the end of 4 years is equal to P2197.22, compute the economic life of the equipment using the Sum of the Years digit method. PROBLEM NO. 3:arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Managerial Economics: Applications, Strategies an...EconomicsISBN:9781305506381Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. HarrisPublisher:Cengage Learning
Managerial Economics: Applications, Strategies an...
Economics
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:Cengage Learning