ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
expand_more
expand_more
format_list_bulleted
Question
Chapter 13, Problem 33P
To determine
To find: The time period after which the existing asset should be replaced.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
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
$8,700. The machines have a current resale value of $8,700, but at the end of year 2, their value will have fallen to $4,200. By
the end of year 6, the machines will be valueless and would be scrapped.
Hayden is considering replacing the copiers with new machines,that would do essentially the same job. These machines cost
$32,000, and the company can take out an eight-year maintenance contract for $1,000 a year. The machines would have no
value by the end of the eight years and would be scrapped.
Both machines are depreciated using seven-year straight-line depreciation, and the tax rate is 40%. Assume for simplicity that
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…
A construction firm purchased a used crane 2 years ago for $445,000. Its operating cost is $325,000 per year and it's expected
salvage value 3 years from now is $145,000. The firm's CEO is considering replacing the presently owned used crane with a brand
new crane with a much higher load limit which will cost $1.5 million. The operating cost of the new crane will be $260,000 per year, but
its higher load limit will allow the contractor to generate extra revenue that is expected to amount to $525,000 per year. The new
crane can probably be sold for $850,000 3 years from now. You have been asked to determine how much the presently owned crane
would have to be worth on the open market today for the annual worth (AW) values of the two machines to be the same over a 3-year
planning period. The contractor's MARR is 9% per year.
The presently owned crane should be worth $
Con the open market.
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
Ch. 13 - Prob. 6PCh. 13 - Prob. 7PCh. 13 - Prob. 8PCh. 13 - Prob. 9PCh. 13 - Prob. 10PCh. 13 - Prob. 11PCh. 13 - Prob. 12PCh. 13 - Prob. 13PCh. 13 - Prob. 14PCh. 13 - Prob. 15PCh. 13 - Prob. 16PCh. 13 - Prob. 17PCh. 13 - Prob. 18PCh. 13 - Prob. 19PCh. 13 - Prob. 20PCh. 13 - Prob. 21PCh. 13 - Prob. 22PCh. 13 - Prob. 23PCh. 13 - Prob. 24PCh. 13 - Prob. 25PCh. 13 - Prob. 26PCh. 13 - Prob. 27PCh. 13 - Prob. 28PCh. 13 - Prob. 29PCh. 13 - Prob. 30PCh. 13 - Prob. 31PCh. 13 - Prob. 32PCh. 13 - Prob. 33PCh. 13 - Prob. 34PCh. 13 - Prob. 35PCh. 13 - Prob. 36PCh. 13 - Prob. 37PCh. 13 - Prob. 38PCh. 13 - Prob. 39PCh. 13 - Prob. 40PCh. 13 - Prob. 41PCh. 13 - Prob. 42PCh. 13 - Prob. 43PCh. 13 - Prob. 44PCh. 13 - Prob. 45PCh. 13 - Prob. 46PCh. 13 - Prob. 47PCh. 13 - Prob. 48PCh. 13 - Prob. 49PCh. 13 - Prob. 50PCh. 13 - Prob. 51PCh. 13 - Prob. 52PCh. 13 - Prob. 53PCh. 13 - Prob. 54PCh. 13 - Prob. 55PCh. 13 - Prob. 56P
Knowledge Booster
Similar questions
- Teduie company bought a new model of motor for its electric power generating plant in 2017. The useful life of the motor was 5 years and the investment was $30,000 in 2017's dollars. The following table shows the savings obtained through the project in actual dollars and the consumer price index numbers for the time period between 2017 and 2022: Price End of Year Savings Index 2017 250 2018 $10,000 250 $12,100 $14,641 $19,326.1 $23,384.6 2019 275 2020 302.5 2021 363 2022 399.3 If the inflation-free interest rate is 15%, determine whether the investment was worthwhile.arrow_forwardGordon Inc. has a number of copiers that were bought four years ago for $20,000. Currently maintenance costs $2,000 a year, but the maintenance agreement expires at the end of two years and thereafter the annual maintenance charge will rise to $8,000. The machines have a current resale value of $8,000, but at the end of year 2 their value will have fallen to $3,500. By the end of year 6 the machines will be valueless and would be scrapped. Gordon is considering replacing the copiers with new machines that would do essentially the same job. These machines cost $25,000, and the company can take out an eight-year maintenance contract for $1,000 a year. The machines have no value by the end of the eight years and would be scrapped. Both machines are depreciated by using seven-year MACRS, and the tax rate is 35 percent. Assume for simplicity that the inflation rate is zero. The real cost of capital is 7 percent. When should Gordon replace its copiers, now, the end of year 2, or the end of…arrow_forwardMajdy Corporation purchased a machine 5 years ago for JOD 527,000 when it launched product X. Unfortunately, this machine has broken down and cannot be repaired. The machine could be replaced by a new model machine "M1" costing JOD 545,000 or by a new model "M2" machine costing JOD 450,000. Management has decided to buy the model "M2" machine. It has less capacity than the model "M1" machine, but its capacity is sufficient to continue making product X. Management also considered, but rejected, the alternative of dropping product X and not replacing the old machine. If that were done, the JOD 450,000 invested in the new machine could instead have been invested in a project that would have returned a total of JOD 532,000. 1. What is the amount of sunk cost if the decision was to buy model "M2" machine rather than the model "M1" machine? 2. What is the amount of opportunity cost if the decision was to invest in model "M2" machine?arrow_forward
- A machine that has been used for 8 years has a market value of $2,500 now, which decreases by $100 each year for the next 5 years. Maintenance costs this year are $5k, and for the next 5 years they are estimated at $6k, $7k, $8k and $9k. Determine the marginal cost of extending the service for two years if the MARR is 12%. Answer the questions: a) How much is the loss in market value in year 2? b) How much is the loss in interest in year 2? c) What is the Marginal Cost in year 2? d) If the machine's minimum EUAC is $5,500, when, in years, should the machine be replaced?arrow_forward8 years ago a company installed a robot that today has a market value of $ 60,000 and each year it drops $ 2000. For example, at the end of the first year the market value will be $ 58,000 and so it continues to decline. Maintenance costs for the next 4 years are estimated at $ 3000 this year and increasing 10% each year. Determine the marginal cost of extending the service for one year, for the next 4 years if the MARR is 12%. Fill in the blanks with the results. Calculate: a) The loss of market value in year 1 is $ b) Loss in interest in year 1 $ c) The Marginal Cost in year 1 is Show all the procedure for your answer thank youarrow_forwardWe bought a CNC machine 3 years ago for $100,000 with a salvage value of $20,000 after 8 years. It has an annual operating cost of $30,000. A new machine is available at a price of $120,000, a life of 10 years and a salvage value of $30,000. The annual operating cost for this machine is $15,000. The market value for the CNC machine is $70,000 now. At MARR= 10% per year should we keep the CNC machine or replace it?arrow_forward
- Hayden Inc. has a number of copiers that were bought four years ago for $39,000. Currently maintenance costs $3,900 a year, but the maintenance agreement expires at the end of two years, and thereafter, the annual maintenance charge will rise to $9.900. The machines have a current resale value of $9.900, but at the end of year 2, their value will have fallen to $5,400 By the end of year 6 the machines will be valueless and would be scrapped. Hayden is considering replacing the copiers with new machines that would do essentially the same job. These machines cost $34,000, and the company can take out an eight year maintenance contract for $1,900 a year. The machines would have no value by the end of the eight years and would be scrapped. Both machines are depreciated using seven-year straight-line depreciation, and the tax rate is 35%. Assume for simplicity that the inflation rate is zero, The real cost of capital is 7% a. Calculate the equivalent annual cost, if the copiers are: (1)…arrow_forwardA machine for refining operation was purchased 7 years ago for 160,000 SAR. Last year a replacement study was performed with the decision to retain it for 3 more years. The situation has changed . The equipment is estimated to have a value of 8,000 SAR now or anytime in the future. If kept in service, it can be minimally upgraded at a cost of 43,000 SAR which will make it usable for up to 2 more years. Its operating cost is expected to be 22,000 SAR the first year and 25,000 SAR the second year.arrow_forwardA machine that was used for 8 years has a market value of $2500 now, which decreases by $100 each year for the next 5 years. Maintenance costs this year are $5k, and for the next 5 years they are estimated at $6k, $7k, $8k and $9k. Determine the marginal cost of extending the service for two years if the MARR is 12%. Fill the whites with the results. a) Fill the whites: The loss of value in the market in year 2 is $ The loss in interest in the year 2 $ . The Marginal Cost in year 2 is $ b) If the minimum EUAC of the machine is $5500, when should the machine be replaced? Anus . (0,1,2,3,4 or 5)arrow_forward
- XYZ Company purchased a machine six years ago for $350,000. Last year a replacement study was performed with the decision to retain the machine for 2 more years. However, this year the situation has changed. The machine is estimated to have a value of only $8,000 now and if it is to be kept in service, upgrading at a cost of $50,000 will be necessary to make it useful for up to 2 more years. Operating cost is expected to be $10,000 the first year and $15,000 the second year, with no salvage value at all. Alternatively, the company can purchase a new machine with an ESL of 7 years, no salvage value, and an equivalent annual cost of $ -55,540 per year. The MARR is 10% per year. Using the estimates above, determine a) When the company should replace the upgraded machine?arrow_forwardFour years ago, an industrial batch oven was purchased for $24,000. If sold now, the machine will bring $2500. If sold at the end of the year, it will bring $1500. Salvage value will decline by 20% each additional year. Annual operating costs for subsequent years are $3800 next year and then increase at 8% per year. A new machine will cost $49,000 with a 12-year economic life and have a $3000 salvage value. The operating cost will be $3000 as of the end of each year, with the $6000-per-year savings due to better quality control. If the firm's MARR is 10%, should the machine be purchased now? What is the defender's economic life? year(s) What is the AEC of the defender at its economic life? $ What is the AEC of the challenger at its economic life? $ Please choose your conclusion below:arrow_forwardthe manager has determined that a potential new product can be sold at a priceof$12.50 each. The cost to produce the product is $7.00, but the equipment necessary for production must be leased for $20,000 per year. What is the break-even point?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Managerial Economics: Applications, Strategies an...EconomicsISBN:9781305506381Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. HarrisPublisher:Cengage Learning
Managerial Economics: Applications, Strategies an...
Economics
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:Cengage Learning