The plant manager has asked you to do a cost analysis to determine when currently owned equipment should be replaced. The manager stated that under no circumstances will the existir equipment be retained longer than two more years and that once it is replaced, a contractor wil provide the same service from then on at a cost of $97,000 per year. The salvage value of the currently owned equipment is estimated to be $37,000 now, $30,000 in 1 year, and $19,000 t years from now. The operating cost is expected to be $85,000 per year. Using an interest rate 10% per year, determine when the defending equipment should be retired. Annual Worth of Defender, Year 1 = Annual Worth of Defender, Year 2 = At the end of year the asset should be retired.

The plant manager has asked you to do a cost analysis to determine when currently owned equipment should be replaced. The manager stated that under no circumstances will the existir equipment be retained longer than two more years and that once it is replaced, a contractor wil provide the same service from then on at a cost of $97,000 per year. The salvage value of the currently owned equipment is estimated to be $37,000 now, $30,000 in 1 year, and $19,000 t years from now. The operating cost is expected to be $85,000 per year. Using an interest rate 10% per year, determine when the defending equipment should be retired. Annual Worth of Defender, Year 1 = Annual Worth of Defender, Year 2 = At the end of year the asset should be retired.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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A small strip-mining coal company is trying to decide whether it should purchase or lease a new clamshell. If purchased, the "shell" will cost $150,000 and is expected to have a $47,500 salvage value after 6 years. Alternatively, the company can lease a clamshell for only $15,000 per year, but the lease payment will have to be made at the beginning of each year. If the clamshell is purchased, it will be leased to other strip-mining companies whenever possible, an activity that is expected to yield revenues of $8,000 per year. If the company's MARR is 12% per year, should the clamshell be purchased or leased on the basis of a future worth analysis? Assume the annual M&O cost is the same for both options. The future worth when purchased is $ The future worth when leased is $ The clamshell should be (Click to select) ✓
A small strip-mining coal company is trying to decide whether it should purchase or lease a new clamshell. If purchased, the “shell” will cost $140,000 and is expected to have a $45,000 salvage value after 6 years. Alternatively, the company can lease a clamshell for only $14,000 per year, but the lease payment will have to be made at the beginning of each year. If the clamshell is purchased, it will be leased to other strip-mining companies whenever possible, an activity that is expected to yield revenues of $10,000 per year. If the company’s MARR is 12% per year, should the clamshell be purchased or leased on the basis of a future worth analysis? Assume the annual M&O cost is the same for both options. The future worth when purchased is $ . The future worth when leased is $ .
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Newport Corporation purchased equipment for making pneumatic vibration isolators at a cost of $90,000 two years ago. It has a market value that can be described by the relation $90,000 - 8000k, where k is the years from time of purchase. Experience with this type of equipment has shown that the operating cost for the first 4 years is $65,000 per year, after which it increases by $6300 per year. The asset's salvage value was originally estimated to be $7000 after a predicted 10-year useful life. Determine the market value today if a replacement study is done now.
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