DVH Technologies purchases several parts for the instruments it makes via a fixed-price contract of $190,000 per year from a local supplier. The company is considering making the parts in-house through the purchase of equipment that will have a first cost of $260,000 with an estimated salvage value of $30,000 after 5 years. The AOC is difficult to estimate, but company engineers have made optimistic, most likely, and pessimistic estimates of $65,000, $85,000, and $120,000, respectively. The MARR is 20% per year. Use factors to determine if the company should purchase the equipment under any of the AOC scenarios. The AW value for the optimistic scenario is $- 25,970 and the company should make the parts for the optimistic scenario. The AW value for the most likely scenario is $- 5,970 , and the company should make the parts for the most likely scenario. The AW value for the pessimistic scenario is $- -29,030 , and the company should purchase the parts for the pessimistic scenario.

DVH Technologies purchases several parts for the instruments it makes via a fixed-price contract of $190,000 per year from a local supplier. The company is considering making the parts in-house through the purchase of equipment that will have a first cost of $260,000 with an estimated salvage value of $30,000 after 5 years. The AOC is difficult to estimate, but company engineers have made optimistic, most likely, and pessimistic estimates of $65,000, $85,000, and $120,000, respectively. The MARR is 20% per year. Use factors to determine if the company should purchase the equipment under any of the AOC scenarios. The AW value for the optimistic scenario is $- 25,970 and the company should make the parts for the optimistic scenario. The AW value for the most likely scenario is $- 5,970 , and the company should make the parts for the most likely scenario. The AW value for the pessimistic scenario is $- -29,030 , and the company should purchase the parts for the pessimistic scenario.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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