Don't upload this solution I vill give 10 downvotes Plz give only correct solution Step 1: Define the given problemTo determine whether you should replace yourexisting equipment with the new equipment, weneed to calculate the Equivalent Annual Cost(EAC) for both options and compare them. Theoption with the lower EAC is the moreeconomical choice.Step 2: Choose the replacement to be done ornotLet's start by calculating the EAC for your existingequipment:Calculate the annual operating and maintenancecost for the existing equipment for the first yearandand subsequent years:Year 1: $8,000Year 2: $8,0001.10 $8,800Year 3: $8,8001.10 = $9,680Year 4: $9,680 1.10 = $10,648Year 5: $10,648*1.10 = $11,712Calculate the salvage value for the existingequipment for each year:Year 1: $11,000 (initial value)Year 2: $11,000 0.80 = $8,800Year 3: $8,800 0.80 = $7,040Year 4: $7,040 * 0.80 = $5,632Year 5: $5,632 * 0.80 = $4,506Calculate the net cash flow for each year bysubtracting the annual operating andmaintenance cost from the salvage value:Year 1: $11,000 - $8,000 $3,000real 1.Year 2: $8,800-$8,800 = $0Year 3: $7,040 - $9,680=-$2,640Year 4: $5,632-$10,648=-$5,016WearYear 5: $4,506-$11,712=-$7,206Calculate the present value (PV) of these cashFloreflows at a 8% MARR (Minimum Acceptable Rate ofReturn):Year 1Year 1: $3,000/(1+0.08) = $2,777.78 (rounded tothe nearest cent)the nearYear 2: $0/(1+0.08)^2 = $0Year 3:-$2,640/(1+0.08)^3=-$2,095.16(rounded to the nearest cent)Year 4:-$5,016/(1+0.08)^4 =-$3,686.90(rounded to the nearest cent)Year 5:-$7,206/(1+0.08)^5=-$4904.28 (roundedto the nearest cent)Calculate the EAC for the existing equipment:EAC existing (PV Year 1 + PV Year 2 + PV Year 3+PV YearYear 4 + PV Year 5) / Annuity Factor (8%, 5years)years)Using the annuity factor for 8% and 5 years froma financial table or calculator, we get:Annuity Factor (8%, 5 years) = 3.993EAC existing (2,777.78 + $0-2,095.16-3,686.90-4904.28)/3.993=-$1980.61 (rounded to the nearest cent)Now, let's calculate the EAC for the newequipment:Calculate the net cash flow for each year for thecancenew equipment. This includes the initial cost,operating and maintenance costs, and salvagevalues:Year 1: Initial Cost - Operating Cost-$26,000-$6,000-$20,000Year 2: $20,000 - ($6,000Year 3: $13,400 - ($6,000Year 4: $6,140- ($6,000Year 5: $-1846-($6,000 1.10^4) = -$10330Calculate the present value (PV) of these cashflows at an 8% MARR:1.10) = $13,4001.10^2) = $6,1401.10^3) =$-1846MANYear 1: $20,000/(1+0.08) = $18,518.52 (rounded.real 1.920,000to the nearest cent)Year 2: $13,400/(1+0.08)^2 = $11,488.34(rounded to the nearest cent)Year 3: $6140/(1+0.08)^3 = $4874.13 (roundedto the nearest cent)Year 4: $-1846/(1+0.08)^4 =-$1356.87 (roundedto the nearest cent)Year 5:-$10330/(1+0.08)^5=-$7030.42(rounded to the nearest cent).Calculate the EAC for the new equipment:EAC new (PV Year 1 + PV Year 2 + PV Year 3 + PVYear 4+ PV Year 5) / Annuity Factor (8%, 5 years)Using the same annuity factor as before (8%, 5years), we get:EAC new (18,518.52 + 11,488.34 +4874.13 -1356.87-7030.42)/3.993= $6635.04 (rounded to the nearest cent)Now, let's compare the EAC for the existingequipment (-$1980.61) and the newequipment ($6635.04):Since the EAC for the existing equipment isnegative, it means that keeping the existingequipment is the more economical choice.Therefore, you should not replace yourexisting equipment with the new equipmentnow. You own several copiers that are currently valued at $11,000, combined. Annual operating and maintenance costs for allcopiers are estimated at $8,000 next year, increasing by 10 percent each year thereafter. Salvage values decrease at a rateof 20 percent per year. You are considering replacing your existing copiers with new ones that have a suggested retail priceof $26,000. Operating and maintenance costs for the new equipment will be $6,000 over the first year, increasing by 10percent each year thereafter. The salvage value of the new equipment is well approximated by a 20 percent drop from thesuggested retail price per year. Furthermore, you can get a trade-in allowance of $12,000 for your equipment if you purchasethe new equipment at its suggested retail price. Your MARR is 8 percent. Should you replace your existing equipment now?Click the icon to view the table of compound interest factors for discrete compounding periods when i = 8%.The economic life of the existing equipment isequipment, which has an economic life ofequipment now.(Round to the nearest whole number as needed.)year(s) with a total EAC of $year(s) and a total EAC of $ YouThis is atotal EAC than the newreplace your existing

Equivalent annual cost(EAC) refers to the cost annually of buying an asset, the cost involved in…

You own several copiers that are currently valued at $11,000, combined. Annual operating and maintenance costs for all copiers are estimated at $8,000 next year, increasing by 10 percent each year thereafter. Salvage values decrease at a rate of 20 percent per year. You are considering replacing your existing copiers with new ones that have a suggested retail price of $26,000. Operating and maintenance costs for the new equipment will be $6,000 over the first year, increasing by 10 percent each year thereafter. The salvage value of the new equipment is well approximated by a 20 percent drop from the suggested retail price per year. Furthermore, you can get a trade-in allowance of $12,000 for your equipment if you purchase the new equipment at its suggested retail price. Your MARR is 8 percent. Should you replace your existing equipment now? Click the icon to view the table of compound interest factors for discrete compounding periods when i = 8%. year(s) with a total EAC of $ year(s) and a total EAC of $ You The economic life of the existing equipment is equipment, which has an economic life of equipment now. (Round to the nearest whole number as needed.) This is a total EAC than the new replace your existing

You own several copiers that are currently valued at $11,000, combined. Annual operating and maintenance costs for all copiers are estimated at $8,000 next year, increasing by 10 percent each year thereafter. Salvage values decrease at a rate of 20 percent per year. You are considering replacing your existing copiers with new ones that have a suggested retail price of $26,000. Operating and maintenance costs for the new equipment will be $6,000 over the first year, increasing by 10 percent each year thereafter. The salvage value of the new equipment is well approximated by a 20 percent drop from the suggested retail price per year. Furthermore, you can get a trade-in allowance of $12,000 for your equipment if you purchase the new equipment at its suggested retail price. Your MARR is 8 percent. Should you replace your existing equipment now? Click the icon to view the table of compound interest factors for discrete compounding periods when i = 8%. year(s) with a total EAC of $ year(s) and a total EAC of $ You The economic life of the existing equipment is equipment, which has an economic life of equipment now. (Round to the nearest whole number as needed.) This is a total EAC than the new replace your existing

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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