A piece of equipment has a first cost of $145,000, a maximum useful life of 7 years, and a market (salvage) value described by the relation S-120,000 -25,000k, where k is the number of years since it was purchased. The salvage value cannot go below zero. The AOC series is estimated using AOC = 60,000+ 13,000k. The interest rate is 13% per year. Determine the economic service life and the respective AW. The economic service life is year(s) and the AW value is $[

A piece of equipment has a first cost of $145,000, a maximum useful life of 7 years, and a market (salvage) value described by the relation S-120,000 -25,000k, where k is the number of years since it was purchased. The salvage value cannot go below zero. The AOC series is estimated using AOC = 60,000+ 13,000k. The interest rate is 13% per year. Determine the economic service life and the respective AW. The economic service life is year(s) and the AW value is $[

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Assume the MARR is 10% per year for this analysis. A presently owned machine that was purchased 8 years ago for $450,000 is under consideration for replacement. It has an annual operating cost of $120,000 per year and a salvage value of $40,000 whenever it is replaced. The challenger has a first cost of $670,000, an expected annual operating cost of $94,000, and a salvage value of $60,000 after its 10-year economic life. The breakeven market value of the presently owned machine required to make the AW values of the two machines the same, if the presently owned machine is kept for 5 more years and then replaced with the challenger that has the same AW, is closest to: (a) $196,340 (b) $255,390 (c) $325,360 (d ) $394,770
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