Contemporary Engineering Economics (6th Edition)
6th Edition
ISBN: 9780134105598
Author: Chan S. Park
Publisher: PEARSON
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Question
Chapter 14, Problem 3P
(a):
To determine
Calculate the sunk cost.
(b):
To determine
Calculate the cash flow.
(c):
To determine
Calculate the annual cost.
(d):
To determine
Replacement decision.
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Students have asked these similar questions
Komatsu Cutting Technologies is considering replacing one of its CNC machines with one that is newer
and more efficient. The firm purchased the CNC machine 10 years ago at a cost of $150,000. The
machine had an expected economic life of 12 years at the time of purchase and an expected salvage
value of $12,000 at the end of the 12 years. The original salvage estimate is still good, and the machine
has a remaining useful life of 2 years. The firm can sell this old machine now to another firm in the
industry for $35,000. A new machine can be purchased for $175,000, including installation costs. It has
an estimated useful (economic) life of 8 years. The new machine is expected to reduce the cash
operating expenses by $30,000 per year over its 8-year life, at the end of which the machine is
estimated to be worth only $5000. The company has a MARR of 12%. The asset is classified as a Class 43
Property with a CCA rate of %30. The firm's marginal tax rate is 40%.
Compute the cash flows…
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?
An 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. $24.664.99
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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