The plant manager has asked you to do a cost analysis to determine when currently owned equipment should be replaced. The manager stated that under no circumstances will the existing equipment be retained longer than two more years and that once it is replaced, a contractor will provide the same service from then on at a cost of $97,000 per year. The salvage value of the currently owned equipment is estimated to be $37,000 now, $30,000 in 1 year, and $19,000 two years from now. The operating cost is expected to be $85,000 per year. Using an interest rate of 10% per year, determine when the defending equipment should be retired.
What will be an ideal response?
Find defender ESL; compare with AWC = $-97,000
AWD,1 = -37,000(A/P,10%,1) – 85,000 + 30,000(A/F,10%,1) –
= -37,000(1.10) – 85,000 + 30,000(1.000)
= $-95,700
AWD,2 = -37,000(A/P,10%,2) – 85,000 + 19,000(A/F,10%,2)
= -37,000(0.57619) – 85,000 + 19,000(0.47619)
= $-97,271
Defender ESL is n = 1 year with AWD = $-95,700
Keep equipment one year and then replace with contractor
You might also like to view...
Repeat Problem P3.6. Calculate the average fading duration if ? = 0.1.
What will be an ideal response?
The core of a fiber optic cable is composed of either ____ or plastic.
A. polyurethane B. copper C. silver D. glass
1 photovoltaic panel produces 240 watts. Find the number of panels needed to produce 18,960 watt?s.
Fill in the blank(s) with the appropriate word(s).
Ohm?s law states that the resistance of a circuit is equal to the _____.