Jensen Systems purchases several parts for the instruments it makes via a fixed-price contract of $155,000 per year from a local supplier. The new president of Jensen wants to make the parts inhouse through the purchase of equipment that will have a first cost of $240,000 with an estimated salvage value of $30,000 after 5 years. The AOC is difficult to estimate, but company engineers have made optimistic, most likely, and pessimistic estimates of $70,000, $85,000, and $120,000 per year, respectively. Determine if the company should purchase the equipment under any of the operating cost scenarios. The MARR is 20% per year.
Jensen Systems purchases several parts for the instruments it makes via a fixed-price contract of $155,000 per year from a local supplier. The new president of Jensen wants to make the parts inhouse through the purchase of equipment that will have a first cost of $240,000 with an estimated salvage value of $30,000 after 5 years. The AOC is difficult to estimate, but company engineers have made optimistic, most likely, and pessimistic estimates of $70,000, $85,000, and $120,000 per year, respectively. Determine if the company should purchase the equipment under any of the operating cost scenarios. The MARR is 20% per year.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Jensen Systems purchases several parts for the instruments
it makes via a fixed-price contract of
$155,000 per year from a local supplier. The new
president of Jensen wants to make the parts inhouse
through the purchase of equipment that
will have a first cost of $240,000 with an estimated
salvage value of $30,000 after 5 years. The
AOC is difficult to estimate, but company engineers
have made optimistic, most likely, and pessimistic
estimates of $70,000, $85,000, and
$120,000 per year, respectively. Determine if the
company should purchase the equipment under
any of the operating cost scenarios. The MARR is
20% per year.
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