Engineering Economic Analysis
Engineering Economic Analysis
13th Edition
ISBN: 9780190296902
Author: Donald G. Newnan, Ted G. Eschenbach, Jerome P. Lavelle
Publisher: Oxford University Press
Question
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Chapter D, Problem 76P
To determine

The minimum salvage value as a percentage of first cost.

Expert Solution & Answer
Check Mark

Answer to Problem 76P

Therefore the correction option is (b)36%.

Explanation of Solution

Given data:

Cost of the tank is $150,000.

Salvage value is $7,500.

Time period is 10years.

Annual repair cost for every 2 year is $30,000.

Cost of the new tank is $325,000.

Interest rate is 12%.

Number of years is 20.

Concept used:

Write the expression to calculate the salvage value of the technology.

SV=[(cost)( 1 stcost)( 1 ( 1+i) n)( 2 ndcost)( 1 ( 1+i) n)( 3 rdcost)( 1 ( 1+i) n)( 4 thcost)( 1 ( 1+i) n)+salvagevalue( 1 ( 1+i) n)+costtechnology] ...... (I)

Here, salvage value is SV, interest rate is i, and time period is n.

Calculation:

Calculate the salvage value for the technology,

Substitute, $150,000 for cost, $30,000 for 1st cost, $30,000 for 2nd cost, $30,000 for 3rd cost, $7,500 for 4th cost, 12% for i and in increments of 2 for n in Equation (I).

SV=[( $150,000)( $30,000)( 1 ( 1+0.12) 2)( $30,000)( 1 ( 1+0.12) 4)( $30,000)( 1 ( 1+0.12) 6)( $30,000)( 1 ( 1+0.12) 8)( $7,500)( 1 ( 1+0.12) 10)+$325,000]=[( $150,000)( $30,000)( 0.7972)( $30,000)( 0.6355)( $30,000)( 0.5066)( $30,000)( 0.4038)( $7,500)( 0.3222)+$325,000]=[$150,000$23,916$19,065$15,198$12,114$2,416.5+$325,000]=$102,290.5

Write the expression to calculate percentage to the first cost.

PC=SalvagevaluetechnologyCosttechnology×100 ....... (II)

Substitute, $102,290.5 for salvage value and $325,000 for cost in Equation (II)

PC=$102,290.5$325,000×100=32%.

Conclusion:

The nearest value to the answer is 36%.

Therefore, the correction option is (b)36%.

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Chapter D Solutions

Engineering Economic Analysis

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