A city water and waste-water department has a four-year-old sludge pump that was initially purchased for $65,000. This pump can be kept in service for an additional four years, or it can be sold for $36,000 andreplaced by a new pump. The purchase price of the replacement pump is $52,000. The projected MVs and operating and maintenance costs over the four-year planning horizon are shown in the table that follows.Assuming the MARR is 8%, (a) determine the economic life of the challenger and (b) determine when the defender should be replaced.DefenderChallengerYearMV at EOYO&M CostsMV at EOYO&M Costs1$23,500$17,500$41,000$1450020,50023,500219,50015,50034,00027,00017,50020,50023,500411,50026,50020,000Click the icon to view the interest and annuity table for discrete compounding when the MARR is 8% per year.a. The economic life of the challenger is year(s). (Round to the nearest whole number.)b. The defender should be replacedEnter your answer in the answer box.

Working : Computation of Economic Life of Challenger Particulars t=0 t=1 t=2 t=3…

Answered: . The economic life of the challenger…

. The economic life of the challenger is year(s). (Round to the nearest whole number.) p. The defender should be replaced

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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A city water and waste-water department has a four-year-old sludge pump that was initially purchased for $65,000. This pump can be kept in service for an additional four years, or it can be sold for $35,000 and replaced by a new pump. The purchase price of the replacement pump is $50,000. The projected MVs and operating and maintenance costs over the four-year planning horizon are shown in the table that follows. Assuming theMARR is 10%, (a) determine the economic life of the challenger and (b) determine when the defender should be replaced.
The city of Peachtree is comparing the following two plans for supplying water to a newly developed subdivision:1 Plan A will manage requirements for the next 15 years; at the end of thatperiod, the initial cost of $1,500,000 will have to be doubled to meet the requirements of subsequent years. The facilities installed in years 0 and15 may be considered permanent; however, certain supporting equipmentwill have to be replaced every 30 years from the installation dates at a costof $200,000. Operating costs are $91,000 a year for the first 15 years and$182,000 thereafter. Beginning in the 21st year, they will increase by $3,000a year.2 Plan B will supply all requirements for water indefinitely into the future,although it will operate at only half capacity for the first 15 years. Annualcosts over this period will be $105,000 and will increase to $155,000 beginning in the 16th year. The initial cost of Plan Bis $1,950,000; the facilities can be considered permanent, although it will be…
. A city water and waste-water department has afour-year-old sludge pump that was initially purchasedfor $65,000. This pump can be kept in service for anadditional four years, or it can be sold for $35,000and replaced by a new pump. The purchase price ofthe replacement pump is $50,000. The projected MVsand operating and maintenance costs over the fouryear planning horizon are shown in the table thatfollows. Assuming the MARR is 10%, (a) determine theeconomic life of the challenger and (b) determine whenthe defender should be replaced. (9.5, 9.6)Defender ChallengerMV at O&M MV at O&MYear EOY Cost EOY Cost1 $25,000 $18,500 $40,000 $13,0002 21,000 21,000 32,000 15,5003 17,000 23,500 24,000 18,0004 13,000 26,000 16,000 20,500
A city government is considering two types oftown-dump sanitary systems. Design A requires aninitial outlay of $400,000 with annual operating andmaintenance costs of $50,000 for the next 15 years;design B calls for an investment of $300,000 withannual operating and maintenance costs of $80,000per year for the next 15 years. Fee collections fromthe residents would again be $85,000 per year. Theinterest rate is 8%, and no salvage value is associatedwith either system.(a) Using the benefit–cost ratio BC(i), which systemshould be selected?M16_PARK9091_06_GE_C16.indd 901 10/22/15 5:22 PM902 Chapter 16 Economic Analysis in the Service SectIf a new design (design C), which requires aninitial outlay of $350,000 and annual operatingand maintenance costs of $65,000, is proposed,would your answer in part (a) change?
A municipal engineer is evaluating two alternatives for adding capacity to the water supply system for the city. The first alternative is a dam with a cost of $80,000,000.00 that will require operating and maintenances costs of $250,000.00 per year. The dam will have an infinite life. The second alternative under consideration is a pipeline to transport water from a nearby lake. The pipeline costs $4,500,000.00, it will last five years, and it has operating and maintenance costs of $500,000.00 per year. Using an interest rate of 5%, which alterna- tive should be selected by the city based on capitalized cost?
The city of Oak Ridge is evaluating three mutually exclusive landscaping plans for refurbishing a public greenway. Benefits to the community have been estimated by a landscaping committee, and the costs of planting trees and shrubbery, as well as maintaining the greenway, are summarized below. The city’s discount rate is 8% per year, and the planning horizon is 10 years. Solve, a. Use the B–C ratio method to recommend the best plan when annual maintenance expenses offset annual benefits in the numerator. b. Repeat Part (a) when annual maintenance expenses add to total costs in the denominator. Which plan is best? c. Should the recommendations in Part (a) and (b) be the same? Why or why not?
An environmental consultant is considering the installation of a water storage tank for a client. The tank is estimated to have an initial cost of $426,000, and annual maintenance costs are estimated to be $6,400 per year. As an alternative, a holding pond can be provided a short distance away at an initial cost of $180,000 for the pond plus $90,000 for pumps and piping. Annual operating and maintenance costs for the pumps and holding pond are estimated to be $17,000. The planning horizon is 20 years, and at that time, neither alternative has any salvage value. Determine the preferred alternative based on a present worth analysis with a MARR of 20%/year.
The city of Oak Ridge is evaluating three mutually exclusive landscaping plans for refurbishing a public greenway. Benefits to the community have been estimated by a landscaping committee, and the costs of planting trees and shrubbery, as well as maintaining the greenway, are summarized below. The city's discount rate is 10% per year, and the planning horizon is 10 years. Use the Incremental benefit cost (B/C) analysis to determine the best option. Note: Use the same excel sheet that you downloaded in the previous question to solve this question. Solve it in a new sheet in the same document. Annual benefits, Annual disbenefits, Plan Initial cost, $ Annual cost, $/year $/year $/year 50,000 3,000 20,000 500 90,000 4,000 30,000 2,000 C 200,000 6,000 61,000 2,100
A local county government is considering purchasing some dump trucks for thetrash pickups. Each truck will cost $55,000 and have an operating and maintenance cost that starts at $18,000 the first year and increases by $3,000 per yearthereafter. Assume the salvage value is $12,000 at the end of 5 years and theinterest rate is 10%. The equivalent annual cost of owning and operating eachtruck is most nearly(a) $35,974 (b) $32,600(c) $6,956 (d) $37,939
Street lighting fixtures and their sodium vapor bulbs for a two-block area of a large city need to be installed at a first cost (investment cost) of $120,000. Annual maintenance expenses are expected to be $6,500 for the first 20 years and $8,500 for each year thereafter. The lighting will be needed for an indefinitely long period of time. With an interest rate of 10% per year, what is the capitalized cost of this project (choose the closest answer below)? (a) $178,313 (b) $188,000 (c) $202,045 (d) $268,000.
The city of Oak Ridge is evaluating three mutually exclusive landscaping plans for refurbishing a public greenway. Benefits to the community have been estimated by a landscaping committee, and the costs of planting trees and shrubbery, as well as maintaining the greenway, are summarized below. The city’s cost of capital is 8% per year, and the planning horizon is 10 years. Which landscaping plan will you recommend based on B/C ratio analysis? Landscaping plan A B C Initial planning cost $75,000 $50,000 $65,000 Annual maintenance expense 4,000 5,000 4,700 Annual community benefits 20,000 18,000 20,000
The town of Podunk is considering building a new downtown parking lot. The land will cost $25,000, and the construction cost of the lot will be $150,000. Each year, costs associated with the lot will be $17,500. The income from the lot is $18,000 the first year, increasing by $3500 each year for the 12-year expected life of the lot. Determine the B/C ratio if Podunk uses a cost of money of 4%.

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