The Georgia Ceramic Company has anautomatic glaze sprayer that has been used for thepast 10 years. The sprayer can be used for another10 years and will have a zero salvage value at thattime. The annual operating and maintenance costsfor the sprayer amount to $15,000 per year. Due toan increase in business, a new sprayer must be purchased. Georgia Ceramic is faced with two options.• Option 1: If the old sprayer is retained, a newsmaller capacity sprayer will be purchased at a costof $48,000, and it will have a $5,000 salvage valuein 10 years. This new sprayer will have annualoperating and maintenance costs of $12,000. Theold sprayer has a current market value of $6,000.• Option 2: If the old sprayer is sold, a newsprayer of larger capacity will be purchased for$84,000. This sprayer will have a $9,000 salvagevalue in 10 years and will have annual operatingand maintenance costs of $24,000.Which option should be selected at MARR = 15%?
The Georgia Ceramic Company has an
automatic glaze sprayer that has been used for the
past 10 years. The sprayer can be used for another
10 years and will have a zero salvage value at that
time. The annual operating and maintenance costs
for the sprayer amount to $15,000 per year. Due to
an increase in business, a new sprayer must be purchased. Georgia Ceramic is faced with two options.
• Option 1: If the old sprayer is retained, a new
smaller capacity sprayer will be purchased at a cost
of $48,000, and it will have a $5,000 salvage value
in 10 years. This new sprayer will have annual
operating and maintenance costs of $12,000. The
old sprayer has a current market value of $6,000.
• Option 2: If the old sprayer is sold, a new
sprayer of larger capacity will be purchased for
$84,000. This sprayer will have a $9,000 salvage
value in 10 years and will have annual operating
and maintenance costs of $24,000.
Which option should be selected at MARR = 15%?
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