Item A is currently in use at a plant. The original cost of the piece of machinery was $2,000. Its maintenance cost is $500 this year, increasing each year by $30. Items A can be replaced by Item B which has a current cost of $3,500. Item B has no annual maintenance costs, but it is anticipated that the item purchase cost increases by $50 per year. Disregarding income taxes effects (such as depreciation), what is the predicted optimum time (after year 'X') to schedule a replacement of Item A with Item B. Use 8% as the 'interest rate', which really is the value of money to the company. a. 5 years b. 6 years c. 7 years d. 8 years

Item A is currently in use at a plant. The original cost of the piece of machinery was $2,000. Its maintenance cost is $500 this year, increasing each year by $30. Items A can be replaced by Item B which has a current cost of $3,500. Item B has no annual maintenance costs, but it is anticipated that the item purchase cost increases by $50 per year. Disregarding income taxes effects (such as depreciation), what is the predicted optimum time (after year 'X') to schedule a replacement of Item A with Item B. Use 8% as the 'interest rate', which really is the value of money to the company. a. 5 years b. 6 years c. 7 years d. 8 years

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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