A certain factory building has an old lightingsystem. Lighting the building currently costs, on average, $20,000 a year. A lighting consultant tells thefactory supervisor that the lighting bill can be reducedto $8,000 a year if $50,000 is invested in new lightingin the building. If the new lighting system is installed,an incremental maintenance cost of $3,000 per yearmust be taken into account. The new lighting systemhas zero salvage value at the end of its life. If the oldlighting system also has zero salvage value, and thenew lighting system is estimated to have a life of 20years, what is the net annual benefit for this investment in new lighting? Take the MARR to be 12%.Assume the old lighting system will last 20 years.6.43 Your company needs a machine for the nextseven years, and you have two choices (assume anannual interest rate of 15%).• Machine A costs $100,000 and has an annual operating cost of $47,000. Machine A has a useful lifeof seven years and a salvage value of $15,000.• Machine B costs $150,000 and has an annual operating cost of $30,000. Machine B has a useful lifeof five years and no salvage value. However, thelife of Machine B can be extended by two yearswith a certain amount of investment. If MachineB’s life is extended, it will still cost $30,000 annually to operate and still have no salvage value.What would you pay at the end of year 5 to extendthe life of Machine B by two years?
A certain factory building has an old lighting
system. Lighting the building currently costs, on average, $20,000 a year. A lighting consultant tells the
factory supervisor that the lighting bill can be reduced
to $8,000 a year if $50,000 is invested in new lighting
in the building. If the new lighting system is installed,
an incremental maintenance cost of $3,000 per year
must be taken into account. The new lighting system
has zero salvage value at the end of its life. If the old
lighting system also has zero salvage value, and the
new lighting system is estimated to have a life of 20
years, what is the net annual benefit for this investment in new lighting? Take the MARR to be 12%.
Assume the old lighting system will last 20 years.
6.43 Your company needs a machine for the next
seven years, and you have two choices (assume an
annual interest rate of 15%).
• Machine A costs $100,000 and has an annual operating cost of $47,000. Machine A has a useful life
of seven years and a salvage value of $15,000.
• Machine B costs $150,000 and has an annual operating cost of $30,000. Machine B has a useful life
of five years and no salvage value. However, the
life of Machine B can be extended by two years
with a certain amount of investment. If Machine
B’s life is extended, it will still cost $30,000 annually to operate and still have no salvage value.
What would you pay at the end of year 5 to extend
the life of Machine B by two years?
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