Contemporary Engineering Economics (6th Edition)
6th Edition
ISBN: 9780134105598
Author: Chan S. Park
Publisher: PEARSON
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Question
Chapter 14, Problem 2P
(a):
To determine
Calculate the sunk cost.
(b):
To determine
Calculate the
(c):
To determine
Calculate the annual cost.
(d):
To determine
Calculate the new annual cost.
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Acme-Denver Corporation is considering the replacement of an old, relatively inefficient surface-grinder machine that was purchased seven years ago at a cost of $12,000. The machine had an original expected life of 10 years and a zero estimated salvage value at the end of that period. The current market value of the machine is $2,000. The divisional manager reports that a new machine can be bought and installed for $14,000. Over its five-year life, this machine will expand sales from $10,000 to $12,500 a year and, furthermore, will reduce labor and raw materials usage sufficiently to cut annual operating costs from $7,000 to $5,000. The new machine has an estimated salvage value of $4,000 at the end of its five-year life. The firm's MARR is 12%.(a) Should the new machine be purchased now?(b) What current market value of the new machine would make the two options equal?
A high-speed electronic assembly machine was purchased two years ago for $50,000. At the present time, it can be sold for $25,000 and replaced by a newer model having a purchase price of $42,500; or it can be kept in service for a maximum of one more year. The new assembly machine, if purchased, has a useful life of not more than two years. The projected resale values and operating and maintenance costs for the challenger and the defender are shown in the accompanying table on a year-by-year basis. The before-tax MARR is 15%.
Year
Challenger
Defender
Market Value
O&M Costs
Market Value
O&M Costs
0
$42,500
-
$25,000
-
1
31,000
$10,000
17,000
14,000
2
25,000
12,500
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a. What is the total marginal cost of the challenger in EOY 1?
b. When should the machine be replaced?
c. What is the EUAC of the challenger in EOY 2?
Chatham Automotive purchased new electric forklifts to move steel automobile parts two years ago. They cost $65,000 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. As a result, their current salvage value is about
$9,000.
Chatham is considering replacing them with propane models. New propane forklifts cost $58,000 each. 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 will be $19,000 this year, rising by 12 percent per year. Operating costs for the propane model will initially be $11,000 over the first year,
rising by 12 percent per year. Should Chatham Automotive replace the forklifts now?
E Click the icon to view the table of compound interest factors for discrete…
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
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