An existing process involving polymers that reduce friction loss in engines is described in Problem 11.37. Assume it is possible to do an augmentation and upgrade to the existing process machinery that will provide a 2-year extension to its useful life. Call this Process M. The upgrade will cost $50,000 now, have an increased operating cost of $9,000 per month, and no salvage value after the 2-year extension. Using the same criteria mentioned in Problem 11.37(b), that is, effective i = 1% per month and a 2-year study period, is it economically advantageous to upgrade (option M) or to purchase the equipment for Process K or L? Use a spreadsheet.ing polymers that reduce friction loss in engines is described in Problem 11.37. Assume it is possible to do an augmentation and
upgrade to the existing process machinery that will provide a 2-year extension to its useful life. Call this Process M. The upgrade will cost $50,000 now, have an increased operating cost of $9,000 per month, and no salvage value after the 2-year extension. Using the same criteria mentioned in Problem 11.37(b), that is, effective i = 1% per month and a 2-year study period, is it economically advantageous to upgrade (option M) or to purchase the equipment for Process K or L?
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.
Process M (upgrade current machinery) is economically better (cell B11)
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