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 5P
(a):
To determine
Cash flow.
(b):
To determine
Calculate the annual cost.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Management of Plascencia Corporation is considering whether to purchase a new model 370 machine costing $464,000 or a new model 220 machine
costing $405,000 to replace a machine that was purchased 10 years ago for $439,000. The old machine was used to make product 143L until it broke
down last week. Unfortunately, the old machine cannot be repaired.
Management has decided to buy the new model 220 machine. It has less capacity than the new model 370 machine, but its capacity is sufficient to
continue making product 143L.
Management also considered, but rejected, the alternative of simply dropping product 143L. If that were done, instead of investing $405,000 in the new
machine, the money could be invested in a project that would return a total of $456,000.
In making the decision to invest in the model 220 machine, the opportunity cost was:
Chatham Automotive purchased new electric forklifts to move steel automobile parts two years ago. They cost $80,000 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 $10,000. Chatham is considering replacing them with propane models. New propane forklifts cost $59,000 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 7 percent. Operating costs for the electric model will be $18,000 this year, rising by 12 percent per year. Operating costs for the propane model will initially be $12,000 over the first year, rising by 12 percent per year. Should Chatham Automotive replace the forklifts now?
What is the the minimum total EAC for the electric forklifts and…
Chatham Automotive purchased new electric forklifts to move steel automobile parts two years ago. They cost $80,000 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 $10,000.
Chatham is considering replacing them with propane models. New propane forklifts cost $59,000 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 9 percent.
Operating costs for the electric model will be $20,000 this year, rising by 13 percent per year. Operating costs for the propane model will initially be $11,000 over
the first year, rising by 13 percent per year. Should Chatham Automotive replace the forklifts now?
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
Knowledge Booster
Similar questions
- 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 $11,000. Chatham is considering replacing them with propane models. New propane forklifts cost $59,000 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 $20,000 this year, rising by 13 percent per year. Operating costs for the propane model will initially be $12,000 over the first year, rising by 13 percent per year. Should Chatham Automotive replace the forklifts now? Click the icon to view the table of compound interest factors for discrete…arrow_forwardChatham 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…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
- Chatham 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_forwardHayden 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)…arrow_forwardAs a result of improvements in product engineering, United Automation is able to sell one of its two milling machines. Both machines perform the same function but differ in age. The newer machine could be sold today for $69,500. Its operating costs are $22,600 a year, but at the end of five years, the machine will require a $18,700 overhaul (which is tax deductible). Thereafter, operating costs will be $31,300 until the machine is finally sold in year 10 for $6,950. The older machine could be sold today for $26,300. If it is kept, it will need an immediate $26,500 (tax-deductible) overhaul. Thereafter, operating costs will be $34,900 a year until the machine is finally sold in year 5 for $6,950. Both machines are fully depreciated for tax purposes. The company pays tax at 21%. Cash flows have been forecasted in real terms. The real cost of capital is 13%. a. Calculate the equivalent annual costs for selling the new machine and for selling the old machine. (Do not round intermediate…arrow_forward
- 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…arrow_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_forwardAdvanced Electrical Insulator Company is considering replacing a brokeninspection machine, which has been used to test the mechanical strength of electrical insulators with a newer and more efficient one. If repaired, the old machine can be used for another five years although the firm does not expect to realize any salvage value from scrapping it in five years. Alternatively, the firm can sell the machine to another firm in the industry now for $5,000. If the machine is kept, it will require an immediate $1,200 overhaul to restore it to operable condition. The overhaul will neither extend the service life originally estimated nor increase the value of the inspection machine. The operating costs are estimated at $2,000 during the first year and are expected to increase by $1,500 per year thereafter. Future market values are expected to decline by $1,000 per year. The new machine costs $10,000 and will have operating costs of $2,000 in the first year, increasing by $800 per year…arrow_forward
- Solve step by step detailed answerarrow_forwardXYZ 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_forwardPlease solve without using excel, solve using formulas or tablesarrow_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