In order to replace an old process for producing a polymer that reduces friction loss in engines, two current-technology machines have been identified. Process K will have a first cost of $160,000, an operating cost of $7000 per month, and a salvage value of $50,000 after 1 year and $40,000 after its maximum 2-year life.
Process L will have a first cost of $210,000, an operating cost of $5000 per month, and salvage values of $100,000 after 1 year, $70,000 after 2 years, $45,000 after 3 years, and $26,000 after its maximum 4-year life. You have been asked to determine which process is better using a study period of (a) 1 year, (b) 2 years, and (c) 3 years. The company’s MARR is 12% per year compounded monthly. (Note: Problem 11.46 continues this analysis via spreadsheet with the added option of upgrading the in-place process.)
All evaluations are performed at an effective i = 1% per month
(a) For 1-year study period
AWK,1 = -160,000(A/P,1%,12) – 7000 + 50,000(A/F,1%,12)
= -160,000(0.08885) –7000 + 50,000(0.07885)
= $-17,274
AWL,1 = -210,000(A/P,1%,12) – 5000 + 100,000(A/F,1%,12)
= -210,000(0.08885) –5000 + 100,000(0.07885)
= $-15,774
Process L is better
(b) For 2-year study period
AWK,2 = -160,000(A/P,1%,24) – 7000 + 40,000(A/F,1%,24)
= -160,000(0.04707) –7000 + 40,000(0.03707)
= $-13,048
AWL,2 = -210,000(A/P,1%,24) – 5000 + 70,000(A/F,1%,24)
= -210,000(0.04707) –5000 + 70,000(0.03707)
= $-12,290
Process L is better
(c) For 3-year study period, repurchase process K machine for 1 year after 24 months
AWK,3 = -160,000(A/P,1%,36) – 7000
+ (-160,000 + 40,000)(P/F,1%,24)(A/P,1%,36) + 50,000(A/F,1%,36)
= -160,000(0.03321) – 7000 – 120,000(0.7876)(0.03321)
+ 50,000(0.02321)
= $-14,292
AWL,3 = -210,000(A/P,1%,36) – 5000 + 45,000(A/F,1%,36)
= -210,000(0.03321) –5000 + 70,000(0.02321)
= $-10,349
Process L is still better
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A delivery car had a first cost of $30,000, an annual operating cost of $12,000, and an estimated $4000 salvage value after its 6-year life. Due to an economic slowdown, the car will be retained for only 2 years and must be sold now as a used vehicle. (a) At an interest rate of 10% per year, what must the market value of the 2-year-old vehicle be in order for its AW value to be the same as the AW for a full 6-year life cycle? (b) Compare your answer in (a) with the first cost and expected salvage after 6 years. Is the required market value a reasonable one, in your opinion?
What will be an ideal response?
On non-servo designs, the secondary shoe is always larger than the primary shoe.
Answer the following statement true (T) or false (F)
The fundamental hazard associated with excessive noise is hearing loss.