Contemporary Engineering Economics (6th Edition)
Contemporary Engineering Economics (6th Edition)
6th Edition
ISBN: 9780134105598
Author: Chan S. Park
Publisher: PEARSON
Question
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Chapter 14, Problem 8P

(a):

To determine

Calculate the economic service life.

(b):

To determine

Calculate the economic service life for the challenger.

(c):

To determine

Replacement year.

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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?
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 - - 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?
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
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