Engineering Economy
16th Edition
ISBN: 9780133582819
Author: Sullivan
Publisher: DGTL BNCOM
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Chapter 9, Problem 15P
To determine
Calculate the present wroth.
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The Ajax Corporation has an overhead crane that has an estimated remaining life of 10 years. The crane can be sold now for $8,000. If the crane is kept in service, it must be overhauled immediately at a cost of $5,000. Operating and maintenance costs will be $3,000 per year after the crane is overhauled. The overhauled crane will have zero MV at the end of the 8-year study period. A new crane will cost $20,000, will last for 8 years, and will have a $4,000 MV at that time. Operating and maintenance costs are $1,000 per year for the new crane. The company uses a before-tax interest rate of 10% per year in evaluating investment alternatives. Should the company replace the old crane?
A piece of equipment has an initial cost of $150,000. The market value at the end of each of the next five years is expected to be $65,000, $45,000, $25,000, $5,000 and $0 respectively. The operating and maintenance costs in year 1 are expected to be $10,000 and to increase by $4,000 per year starting in year 2. What is the minimum cost life for this equipment? Assume MARR = 10 %.
A new machine will cost $200,000. Its maximum useful life is 8 years. The expected market value (MV) of the machine at the end of year 1 is $100,000, and it is expected to decline by $15,000 each year afterwards. The annual operating cost (AOC) is projected to be $75,000 during the first year of operation, and it is expected to rise by 15% every year afterwards. Assuming 11% minimum attractive rate of return, calculate the economic service life of the machine. Your calculations need to include a table with the following columns: Year, MV, AOC, Capital Recovery, Annual Worth (AW) of AOC, and Total AW. Illustrate your analysis with a properly labeled chart, featuring the number of years of service on the horizontal axis, and capital recovery, annual worth of the AOC, and total annual worth on the vertical axis (click to format the vertical axis and check the box “Values in reverse order” so that the axis displays rising cost as movement up). Please provide a written statement clearly…
Chapter 9 Solutions
Engineering Economy
Ch. 9 - Prob. 1PCh. 9 - Prob. 2PCh. 9 - Prob. 3PCh. 9 - Prob. 4PCh. 9 - Prob. 5PCh. 9 - Prob. 6PCh. 9 - Prob. 7PCh. 9 - A city water and waste-water department has a...Ch. 9 - Prob. 9PCh. 9 - Prob. 10P
Ch. 9 - Prob. 11PCh. 9 - Prob. 12PCh. 9 - Use the PW method to select the better of the...Ch. 9 - Prob. 14PCh. 9 - Prob. 15PCh. 9 - Prob. 16PCh. 9 - Prob. 17PCh. 9 - Prob. 18PCh. 9 - Prob. 19PCh. 9 - Prob. 20PCh. 9 - Prob. 21PCh. 9 - Prob. 22PCh. 9 - Prob. 23PCh. 9 - Prob. 24PCh. 9 - Prob. 25PCh. 9 - Prob. 26PCh. 9 - Prob. 27SECh. 9 - Prob. 28SECh. 9 - Prob. 29CSCh. 9 - Prob. 30CSCh. 9 - Prob. 31CSCh. 9 - Prob. 32FECh. 9 - Prob. 33FECh. 9 - Prob. 34FECh. 9 - Prob. 35FECh. 9 - Prob. 36FE
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- Your company is considering purchasing a new CNC machining center. The net benefits in the first year will be $50,000, increasing at a rate of $4,000 per year for the subsequent nine years (so the benefits are $50,000, $54,000, $58,000, etc.). You think the company can get a salvage value of $18,000 at the end of its 10-year useful life. If the MARR is 8%, how much can the company justify spending on the CNC machining center? Solve by present worth analysis.arrow_forwardAlpha software is considering replacing one of their computer servers with a newer model, the curent model in question is now worth $1,200,000 (fiuture market values is forecasted to drop by 20% per year). If kept the current server system will require an immediate overhaul that costs $200,000. The operation cost of this server is $170,000 for the first year and will increase by 33% afterwards.A new server model is available which has a 10 years of service life, costs $2,500,000 with O&M costs of$120,000 for the 1st year which increases by 32% for subsequent years. The new server's (challenger's)market value will drop 25% per year through its service life.Knowing that the company's MARR is 10%A] Plot total AE cost (uniform annual equivalent cost) vs useful life for the defender as well as thechallenger up to 10 years.B] Find the economic lives of the defender & the challenger.C Determine if when the defender should be replaced within 10 years.arrow_forwardAn $80,000 baling machine for recycled paper was purchased by the XYZ company two years ago. The current MV of the machine is $50,000, and it can be kept in service for seven more years. MARR is 12% per year and the projected net annual receipts (revenues less expenses) and end-of-year market values for the machine are shown below. When is the best time for the company to abandon this project? END OF YEAR 1 2 3 4 5 6 7 Net annual receipts $20,000 $20,000 $18,000 $15,000 $12,000 $6,000 $3,000 Market value 40,000 32,000 25,000 20,000 15,000 10,000 5,000arrow_forward
- A commercial 3D printer is purchased for $ 380,000. The salvage value of the printer decreases by 35% each year that it is held. The cost to operate and maintain the machine the first year it is used is $ 12,500; these costs increase by $ 4,000 each year. What is the optimal replacement interval and minimum EUAC for the printer, assuming a MARR of 10% is used?arrow_forwardA company purchased a piece of equipment five years ago. A new piece of machinery is being considered for the assembly line because of increasing maintenance costs for this equipment. The cost characteristics of the old equipment and the proposed replacement are shown below: Old Equipment Proposed Replacement Original cost = $18,000 Maintenance = $1000 in year one(four years ago) increasing by $200 per year Market Value(MV) at end of life = 0 Original estimated life = nine years Suppose a $12,000 MV is available now for the old equipment. Perform a before-tax analysis, using a before tax MARR of 12%, with NAW-C or EUAC to determine which alternative to select. Be sure to utilize a uniform gradient in your analysis of the old equipment and account for all cash flows. Purchase cost = $21.000 Maintenance $250 per year Market Value(MV) at end of life = $5.000 Estimated life = five yearsarrow_forwardAn engineer calculated the AW values shown for retaining a presently owned machine additional years. A challenger has an ESL of 4 years with AW = $-60,000 per year. Assuming all future costs remain the same, when should the company replace the defender? The MARR is 12% per year. Assume used machines like the one presently owned will always be available. AW of Defender, 2$ |-77,000 |-63,000 |-58,000 -64,000 -70,000 Years Retained 1 2 3 4 O a) at year 5 O b) at year 4 c) at year 1 d) at year 3arrow_forward
- A small high-speed commercial centrifuge has the following net cash flows and abandonment values over its useful life. The firm's MARR is 8% per year. Determine the optimal time for the centrifuge to be abandoned if its current MV is $8.500 and it won't be used for more than five years. End of Year 3 $1,700 $1,700 $4,100 5,300 $1,700 Annual revenues less expenses Abandonment value of machine" $6,200 "Estimated MV Click the icon to view the interest and annuity table for discrete compounding when MARR 8% per year. 4 $1,700 $2,100 5 $1,700 0 CTC The centrifuge should be retained for year(s) before abandonment. (Round to the nearest whole number. Type O if the centrifuge should be abandoned immediately)arrow_forwardProvide Excel example/formulas as well as without excel? Thank you A tool and die company is considering the purchase of a drill press with fuzzy-logic software to improve accuracy and reduce tool wear. The company has the opportunity to buy a slightly used machine for $15,000 or new one for $21,000. Because the new machine is a more sophisticated model, its operating cost is expected to be $7000 per year, while the used machine is expected to require $8200 per year. Each machine is expected to have 25 years life with 5% salvage value. Tabulate the incremental cash flowarrow_forwardA4-5 A production facility is currently utilizing carbon steel tubing. The current process will require the injection of chemicals to control tubing corrosion due to high temperatures, pressures, and corrosive chlorides in the transported product. It is proposed to replace the car- bon steel that cost $12 per foot with an installation cost of $125,000 last year, with a chrome stainless steel tubing that would cost $68 per foot today (time zero). 20,000 feet of tubing would be required and installation costs are estimated to total $500,000 (also at time zero). Annual cost savings in chemicals, labor, and chemical injection equip- ment are projected to be $550,000 in year one. The year one savings would escalate at an annually compounded rate of 7% per year beginning in year 2. For simplicity, use a 6-year evaluation life with a salvage value of zero at the end of year 6. Assume a 15% minimum ROR. Identify the two mutually exclusive service alternatives in time diagram format and…arrow_forward
- MARR = 12%. This asset is similar across some other asset replacement questions: An asset has a first cost of $90,000 and is expected to lose $5,000 in market value each year, until the asset has a 0$ market value. O&M costs for the first and second year are expected to be zero, but in the third year the repair costs are expected to be $10,000 and increase by 20% per year thereafter. There is a required maintenance in the 5th year of $20,000. EAC6 is within $250 of which of the following? 23,460 23,960 24,460 24,960 25,460 None of the abovearrow_forwardA small aerospace company is evaluating two alternatives: the purchase of an automatic feed machine and a manual feed machine for a finishing process. The auto feed machine has an initial cost of $23,000, an estimated salvage value of $4000, and a predicted life of 10 years. One person will operate the machine at a rate of $12 per hour. The expected output is 8 tons per hour. Annual maintenance and operating cost is expected to be $3500. The alternative manual feed machine has a first cost of $8000, no expected salvage value, a 5-year life, and an output of 6 tons per hour. However, three workers will be required at $8 per hour each. The machine will have an annual maintenance and operation cost of $1500. All projects are expected to generate a return of 10% per year. How many tons per year must be finished to justify the higher purchase cost of the auto feed machine?arrow_forwardA company is considering replacing a machine (defender) that was bought six years ago for $50,000 and has now malfunctioned. The machine can be repaired to extend its life by five more years. If repaired, the machine will require an operating cost of $10,000 per year. If it is replaced, the new machine (challenger) will cost $44,000, will last for six years, and will have operating expenses of $5,000 per year. The challenger will have zero salvage value at the end of its six year life. The malfunctioned defender can be sold at a current market value of $15,000. If MARR is 12% per year, what is the maximum amount that the company should spend to repair the existing machine instead of switching to the challenger? Use the outsider viewpoint method. (Note: All values are before taxes, no tax calculations are necessary).arrow_forward
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