Contemporary Engineering Economics (6th Edition)
6th Edition
ISBN: 9780134105598
Author: Chan S. Park
Publisher: PEARSON
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Question
Chapter 14, Problem 36P
(a):
To determine
Selection of the proposed equipment.
(b):
To determine
Selection of the equipment.
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Students have asked these similar questions
K70.
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?
Majdy Corporation purchased a machine 5 years ago for JOD 527,000 when it launched product X. Unfortunately, this machine has broken down and cannot be repaired. The machine could be replaced by a new model machine "M1" costing JOD 545,000 or by a new model "M2" machine costing JOD 450,000. Management has decided to buy the model "M2" machine. It has less capacity than the model "M1" machine, but its capacity is sufficient to continue making product X. Management also considered, but rejected, the alternative of dropping product X and not replacing the old machine. If that were done, the JOD 450,000 invested in the new machine could instead have been invested in a project that would have returned a total of JOD 532,000.
1. What is the amount of sunk cost if the decision was to buy model "M2" machine rather than the model "M1" machine?
2. What is the amount of opportunity cost if the decision was to invest in model "M2" machine?
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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