ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Chapter 13, Problem 37P
To determine
To find: When the existing asset should be replaced.
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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)
No use excel
A machinge has a first cost of $24,000. Its market value declines by 20% annually. The repair costs are covered by the warranty in Year 1, and then they increase $900 per year. The firm's MARR is 12%. Find the minimum EUAC for this machine and its economic life.
A machinge has a first cost of $24,000. Its market value declines by 20% annually.
The repair costs are covered by the warranty in Year 1, and then they increase
$900 per year. The firm's MARR is 12%. Find the minimum EUAC for this
machine and its economic life.
Chapter 13 Solutions
ENGR.ECONOMIC ANALYSIS
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- We bought a CNC machine 3 years ago for $100,000 with a salvage value of $20,000 after 8 years. It has an annual operating cost of $30,000. A new machine is available at a price of $120,000, a life of 10 years and a salvage value of $30,000. The annual operating cost for this machine is $15,000. The market value for the CNC machine is $70,000 now. At MARR= 10% per year should we keep the CNC machine or replace it?arrow_forwardSacramento 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.arrow_forwardA printing press was purchased 4 years ago for $100,000. The current market value is $45,000, which will decline as follows over the next 5 years: $40,000, $33,500, $28,000, $24,000, and $17,000. The O & M costs are estimated to be $16,000 this year. These costs are expected to increase by $5000 per year starting year 2. MARR = 10% The marginal cost for defender in year 2 is ____________. A. $34,600 B. $31,500 C. $ 33,875 D. $35,400arrow_forward
- A harvester was purchased 4 years ago for $100,000. The current market value is $45,000, which will decline as follows over the next 5 years: $40,000, $33,500, $28,000, $24,000, and $17,000. The O & M costs are estimated to be $16,000 this year. These costs are expected to increase by $5000 per year starting year 2. MARR = 10% The foregone interest in year 4 is _______________.arrow_forwardWith the estimates shown below, Sarah needs to determine the trade-in (replacement) value of machine X that will render its AW equal to that of machine Y at an interest rate of 13% per year. Determine the replacement value. Market Value, $ Annual Cost, $ per Year Salvage Value Life, Years Machine X ? -56,500 13,500 3 Machine Y 84,000 -40,000 for year 1,increasing by 2000 per year thereafter. 18,000 5arrow_forwardThe replacement of a laser cutting machine is being considered. The best available machine on market has an estimated economic life of 12 years with an equivalent annual worth of S-22,800. The current used machine, which was bought three years ago for $36, 000, has a present market value of 54,000 with the following data for the next three years: Estimated Market Value Year S per Year at End of Year., S 20,000 3,000 25.000 2,500 3 30.000 2.000 Select when to replace the machine, using Economic Service Life method at an interest rate of 4% per year, O Replace now O Replace in year one O Replace in year two O Replace in year threearrow_forward
- PLEASE SHOW GIVEN AND REQUIRED. THANK U Machine A was purchased last year for $20,000 and had an estimated market value of $2000 at the end of its 6-year useful life. Annual operating costs are $2000. The machine will perform satisfactorily over the next 5 years. A salesperson for another company is offering a replacement, Machine B, for $14,000, with a market value of $1,400 after 5 years. Annual operating costs for Machine B will only be $1,400. A trade-in allowance of $10,400 has been offered for Machine A. If the MARR is 12% per year, should you buy the new machine? Use RORAI method. Write a brief interpretation of your answer.arrow_forwardHolmes Manufacturing is considering a new machine that costs $275,000 and would reduce pretax manufacturing costs by $90,000 annually. The new machine will be fully depreciated at the time of purchase. Management thinks the machine would have a value of $23,000 at the end of its 5-year operating life. Net operating working capital would increase by $25,000 initially, but it would be recovered at the end of the project's 5-year life. Holmes's marginal tax rate is 25%, and an 11% WACC is appropriate for the project.Suppose the CFO wants you to do a scenario analysis with different values for the cost savings, the machine's salvage value, and the net operating working capital (NOWC) requirement. She asks you to use the following probabilities and values in the scenario analysis: Scenario Probability Cost Savings Salvage Value NOWC Worst case 0.35 $72,000 $18,000 $30,000 Base case 0.35 $90,000 $23,000 $25,000 Best case 0.30 $108,000 $28,000…arrow_forwardWith the estimates shown below, Sarah needs to determine the trade-in (replacement) value of machine X that will render its AW equal to that of machine Y at an interest rate of 12% per year. Determine the replacement value. Machine X Machine Y Market Value, $ ? 93,000 -40,000 for year 1,increasing by 2000 per year thereafter. Annual Cost, $ per Year -57,000 Salvage Value 18,500 20,000 Life, Years 3 The replacement value is $arrow_forward
- 1) The following data represent a defender. Given this data, what is the correct replacement analysis technique to compare this asset against a challenger? How do we know? Year BTCF (Marginal cost) $ $ $ $ 1 3,800.00 2,700.00 2,200.00 4,100.00 4arrow_forwardLombard Company is contemplating the purchase of a new high-speed widget grinder to replace the existing grinder. The existing grinder was purchased 2 years ago at an installed cost of $57,400; it was being depreciated under MACRS using a 5-year recovery period. The existing grinder is expected to have a usable life of 5 more years. The new grinder costs $103,300 and requires $5,200 in installation costs; it has a 5-year usable life and would be depreciated under MACRS using a 5-year recovery period. Lombard can currently sell the existing grinder for $69,900 without incurring any removal or cleanup costs. To support the increased business resulting from purchase of the new grinder, accounts receivable would increase by $40,800, inventories by $29,900, and accounts payable by $57,900. At the end of 5 years, the existing grinder would have a market value of zero; the new grinder would be sold to net $28,600after removal and cleanup costs and before taxes. The firm is subject…arrow_forward1 a delivery vehicle, Defender, D for your grocery delivery company cost $50,000, 10 years ago. it can be used for 4 more years with annual operating costs of $40,000 and an estimated salvage value of $10,000. A new better van can be purchased for 60,000. it has an economic life of 8 years. annual operating costs of $15,000, and an estimated salvage value of $20,000. if purchased the new better van will result in additional revenue of $15,000 per year. what market value now for the currently owned van will make the new van equally attractive. The MARR is 15% compounded annually. (the Pd is negative)arrow_forward
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