Contemporary Engineering Economics (6th Edition)
6th Edition
ISBN: 9780134105598
Author: Chan S. Park
Publisher: PEARSON
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Question
Chapter 14, Problem 42P
(a):
To determine
Calculate the economic service life with 15%.
(b):
To determine
Calculate the replacement year.
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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?
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…
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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