ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Question
Chapter 13, Problem 33P
To determine
To find: The time period after which the existing asset should be replaced.
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Hayden Inc. has a number of copiers that were bought four years ago for $27,000. Currently maintenance costs $2,700 a year,
but the maintenance agreement expires at the end of two years, and thereafter, the annual maintenance charge will rise to
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the end of year 6, the machines will be valueless and would be scrapped.
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the inflation rate is zero. The real cost of capital is 7%.
a. Calculate the equivalent annual cost, if the copiers are: (i)…
A machine purchased 3 years ago for $140,000 is now too slow to meet growing demand. The machine can now be upgraded at a cost of $70,000 or sold to a small business for $40,000. The current machine will have an annual operating cost of $85,000. If upgraded, the currently owned machine will be in service for 3 years more and later it will be replaced with a machine that will be used in the manufacture of various lines of products. This replacement machine, which will serve the company now and for at least 8 years to come, will cost $220,000. Its salvage value will be $50,000 in years 1 through 5; $20,000 after 6 years, and $10,000 thereafter. This will have an estimated operating cost of $65,000 per year. The company asks you to carry out an economic analysis at 20% per year using a time horizon of 5 years. Should the company replace the machine it currently owns or should it do so in 3 years? What are the Equivalent Annual Values of each option? Make the cash flow diagram and the…
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Chapter 13 Solutions
ENGR.ECONOMIC ANALYSIS
Ch. 13 - Prob. 1QTCCh. 13 - Prob. 2QTCCh. 13 - Prob. 3QTCCh. 13 - Prob. 4QTCCh. 13 - Prob. 5QTCCh. 13 - Prob. 1PCh. 13 - Prob. 2PCh. 13 - Prob. 3PCh. 13 - Prob. 4PCh. 13 - Prob. 5P
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