Engineering Economy (17th Edition)
17th Edition
ISBN: 9780134870069
Author: William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher: PEARSON
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Question
Chapter 9, Problem 32FE
To determine
Calculate the present worth.
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A company is considering replacing a machine (defender) that was bought
six years ago for $50,000 and has now malfunctioned. The machine can be repaired to
extend its life by five more years. If repaired, the machine will require an operating cost
of $10,000 per year. If it is replaced, the new machine (challenger) will cost $44,000, will
last for six years, and will have operating expenses of $5,000 per year. The challenger
will have zero salvage value at the end of its six year life. The malfunctioned defender
can be sold at a current market value of $15,000. If MARR is 12% per year, what is
the maximum amount that the company should spend to repair the existing machine
instead of switching to the challenger? Use the outsider viewpoint method. (Note: All
values are before taxes, no tax calculations are necessary).
Majdy 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?
A small high-speed commercial centrifuge has the following net cash flows and abandonment values over its useful life. The firm's MARR is 8% per year. Determine the optimal time for the centrifuge
to be abandoned if its current MV is $8.500 and it won't be used for more than five years.
End of Year
3
$1,700 $1,700
$4,100
5,300
$1,700
Annual revenues less expenses
Abandonment value of machine" $6,200
"Estimated MV
Click the icon to view the interest and annuity table for discrete compounding when MARR 8% per year.
4
$1,700
$2,100
5
$1,700
0
CTC
The centrifuge should be retained for year(s) before abandonment. (Round to the nearest whole number. Type O if the centrifuge should be abandoned immediately)
Chapter 9 Solutions
Engineering Economy (17th Edition)
Ch. 9 - Prob. 1PCh. 9 - Prob. 2PCh. 9 - Prob. 3PCh. 9 - Prob. 4PCh. 9 - Prob. 5PCh. 9 - Prob. 6PCh. 9 - Prob. 7PCh. 9 - A city water and waste-water department has a...Ch. 9 - Prob. 9PCh. 9 - Prob. 10P
Ch. 9 - Prob. 11PCh. 9 - Prob. 12PCh. 9 - Use the PW method to select the better of the...Ch. 9 - Prob. 14PCh. 9 - Prob. 15PCh. 9 - Prob. 16PCh. 9 - Prob. 17PCh. 9 - Prob. 18PCh. 9 - Prob. 19PCh. 9 - Prob. 20PCh. 9 - Prob. 21PCh. 9 - Prob. 22PCh. 9 - Prob. 23PCh. 9 - Prob. 24PCh. 9 - Prob. 25PCh. 9 - Prob. 26PCh. 9 - Prob. 27SECh. 9 - Prob. 28SECh. 9 - Prob. 29CSCh. 9 - Prob. 30CSCh. 9 - Prob. 31CSCh. 9 - Prob. 32FECh. 9 - Prob. 33FECh. 9 - Prob. 34FECh. 9 - Prob. 35FECh. 9 - Prob. 36FE
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- A machine was installed 5 years ago. Its market value is now $15,000 and is expected to decline by 10%/year over the next five years. It is projected that this machine will be operational for another five years, after which time it will be scrapped (no salvage value). This year, its annual costs are estimated as $1500, but will increase by $1000/year thereafter. A new machine is now available for $20,000. It has no annual costs over its five-year minimum cost life (i.e., economic life). Using an 8% MARR, when (if at all) should the existing machine be replaced with the new machine? Group of answer choices Keep Defender for 2 more years and then replace with challenger Keep defender for 3 more years and then replace with challenger Do nothing Keep defender for 4 more years and then replace with challengerarrow_forwardsolve it using manual computation; do not use Microsoft Excel The Ajax Corporation has an overhead crane that has an estimated remaining life of 10 years. The crane can be sold now for $8,000. If the crane is kept in service, it must be overhauled immediately at a cost of $5,000. Operating and maintenance costs will be $3,000 per year after the crane is overhauled. The overhauled crane will have zero MV at the end of the 8-year study period. A new crane will cost $20,000, will last for 8 years, and will have a $4,000 MV at that time. Operating and maintenance costs are $1,000 per year for the new crane. The company uses a before-tax interest rate of 10% per year in evaluating investment alternatives. Should the company replace the old crane?arrow_forwardHayden 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_forward
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