None A critical machine in BHP Billiton's copper refining operation was purchased 7 years ago for $160,000. Last year a replacement studywas performed with the decision to retain it for 3 more years. The situation has changed. The equipment is estimated to have a valueof $8000 if "scavenged" for parts now or anytime in the future. If kept in service, it can be minimally upgraded at a cost of $43,000 tomake it usable for up to 2 more years. Its operating cost is estimated at $22,000 in the first year and $29,000 in the second year.Alternatively, the company can purchase a new system, the challenger, that will have an AWC of $-53,500 over its ESL. Use a MARR of10% per year and annual worth analysis to determine when the company should replace the machine.The AW value of the challenger is $- 53,500 o and the AW value of the defender at the end of year 2 is $-The company should replace the machine after two years

Step 1: To calculate the annual worth of the defender at the end of year 2, we need to sum up the…

Answered: A critical machine in BHP Billiton's…

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 packaging company is planning to replace its existing material handling system (MHS). The MHS that it now owns cost $135000 when purchased 7 years ago and was estimated to have 12 year useful life with a $3000 salvage value at the end of that time. Currently, the MHS has a net market value of $40000 and if it is not sold, it is expected to have operating costs of $24000 per year. A new MHS can be purchase for $85000. This new system is expected to have operating costs of $17000, an economic life of 7 years, and a salvage value of $10000 at the end of that time. For depreciation purposes, assume that the straight line method has been used, and the current MHS and new MHS are 10 year and 5 year recovery property, respectively. If the effective tax rate is 50%, which alternative should be selected in the case of a before tax MARR of 20% and an after tax MARR of 10%
You, an engineer, and an attorney friend, Rob, started a small business 3 years ago to do energy audits for small businesses. A piece of equipment that costs $25,000 then has become prematurely obsolete and needs to be replaced with a solid state version that has a purchase price of $20,000 and the current equipment has a nil salvage value. Your company accountant shows the book value of the equipment to be $10,000. (a) If you buy the solid state equipment, how should the difference between the cost of the new equipment and the value of the old equipment be considered? (b) Your partner thinks of this difference as an added cost to the new equipment, effectively making its purchase price $30,000. Is she correct?
Sacramento Cab Company owns several taxis that were purchased for $25,000 each 4 years ago. The cabs’ 42 current market value is $12,000 each, and if they are kept for another 6 years they can be sold for $2000 per A cab. The annual maintenance cost per cab is $1000 per year. Sacramento Cab has been approached about a leasing plan that would replace the cabs. The leasing plan calls for payments of $6000 per year. The annual maintenance cost for each leased cab is $750 per year. Should the cabs be replaced if the interest rate is 10%?
Machine A was purchased 5 years ago for $90,000. Its operating cost is higher than expected, so it will be used for only 4 more years. Its operating cost this year will be $40,000, increasing by $2000 per year through the end of its useful life. The challenger, machine B, will cost $150,000 with a $50,000 salvage value after its 10-year ESL. Its operating cost is expected to be$10,000 for year 1, increasing by $500 per year thereafter. What is the market value for machine A that would make the two machines equally attractiveat an interest rate of 12% per year?
In a one-year-later replacement analysis, if all estimates are still current and the year is nD, the action that should be taken is: (a) Keep the defender 1 more year (b) Replace the defender with the challenger (c) Look for a new challenger and calculate its AW (d) Keep the defender until its market value is equal to the estimated salvage value of the challenger
Do the operating costs differ between the defender and challenger? Explain how?
A car costs ₱800,000, 4 years ago, and the salvage value is ₱50,000, 6 years from now. If it is to be replaced by a new one and the trade-in value is ₱450,000, find the sunk cost if money is worth 12%
Allen Construction purchased a crane 6 years ago for $130,000. They need a crane of this capacity for the next 5 years. Normal operation costs $35,000 per year. The current crane will have no salvage value at the end of 5 more years. Allen can trade in the current crane for its market value of $40,000 toward the purchase of a new one, which costs $150,000. The new crane will cost only $8,000 per year under normal operating conditions and will have a salvage value of $55,000 after 5 years. If MARR is 20%, determine which option is preferred. a) Use cash flow approach (insider's viewpoint approach) b) Use the opportunity cost approach (outsider's viewpoint approach)
An equipment costs $120,000 and has an estimated salvage value of S 20000 at the end of 10 years of useful life. Calculate, The book value at the end of year 7 using the straight-line method
A recapping plant is planning to acquire a new Diesel generating set to replace its resent unitwhich they run during brownouts. The new set would cost ₱ 135,000 with a five (5) year-life,and no estimated salvage value. Variable cost would be ₱ 150,000 a year.The old generating set has a book value of ₱ 75,000 and a remaining life of 5 years. Itsdisposal value now is ₱ 7,500 but it would be zero after 5 years. Variable operating cost wouldbe ₱187,500 a year. Money is worth 10%.Which is profitable, to buy new generator or retain the old set? Support answer using:a) Equivalent Uniform Annual Cost (EUAC) Method
A recapping plant is planning to acquire a new Diesel generating set to replace its resent unitwhich they run during brownouts. The new set would cost ₱ 135,000 with a five (5) year-life,and no estimated salvage value. Variable cost would be ₱ 150,000 a year.The old generating set has a book value of ₱ 75,000 and a remaining life of 5 years. Itsdisposal value now is ₱ 7,500 but it would be zero after 5 years. Variable operating cost wouldbe ₱187,500 a year. Money is worth 10%.Which is profitable, to buy new generator or retain the old set? Support answer using:a) Annual Cost Methodb) Equivalent Uniform Annual Cost Method
Sacramento Cab Company owns several taxis that were purchased for $25,000 each 4 years ago. The cabs’ current market value is $12,000 each, and if they are kept for another 6 years they can be sold for $2000 per cab. The annual maintenance cost per cab is $1000 per year. Sacramento Cab has been approached about a leasing plan that would replace the cabs. The leasing plan calls for payments of $6000 per year. The annual maintenance cost for each leased cab is $750 per year. Should the cabs be replaced if the interest rate is 10%?The local telephone company purchased four special pole hole diggers 8 years ago for $14,000 each. Owing to an increased workload, additional machines will soon be required.

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