Engineering Economic Analysis

(^434) REPLACEMENTANALYSIS
in the market from year-to-year. The yearly costs of
the old machine were $3000 in Year 1 and increase at
10% thereafter.
13-20 Mary O'Leary's company ships fine wool garments
from County Cork, Ireland. Five years ago she pur-
chased some new automated packing equipment hav-
ing a fir~t cost of $125,000 and a MACRS class life
of 7 years. The annual costs for operating, mainte-
nance, and insurance, as well as market value data for
each year of the equipment's lO-year useful life are
as follows:
I
I
maintenance costs are as follows. Big-J CC Uses a
MARR of 20%; the current market value of the paver
is $120,000.
Estimates of Operating & Maintenance
Cost and Market Value fof Next 7 Years
(old paver)
Now Mary is looking at the remaining 5 years of her
investment in this equipment, which she had initially
evaluated on the basis of an after-tax MARR of 25%
and a tax rate of35% on ordinary equipment. Assum-
ing that the replacement repeatability assumptions are
valid, answer the following questions.
(a)What is the before-tax marginal cost for the
remaining 5 years?
(b)When, if at all, should Mary replace this packing
equipm~tifa~wchall~~~withaminimum
EUAC of $110,000, has been identified: Use the
data from the table and the decision map from
Figure 13-1.
13-21 Big-J Construction Company, Inc. (Big-J CC) is
conducting routine periodic review of existing field
equipment. The owner of Big-J CC has asked for
a replacement evaluation of a paving machine now
in use. A newer, more efficient machine is be-
ing considered. The old machine was purchased
3 years ago for $200,000, and yearly operating and
(a)What is the lowest EUAC of thedefender?
(b)What is the minimum cost life of thechallenger?
(c)When, if at all, should we replace thedefender
with thechallenger?
13-23 SHOJ Enterprises has asked you to look at the follow-
ing data. The interest rate is 10%. After considering
the data, answer questions(a)-(c).
Operating Maintenance Market Value
Year, Cost in Cost in If Sold
n Year n Year n in Yearn
(^1) $15,000 $ 9,000 $85,000
(^2) 15,000 10,000 65,000
(^3) 17,000 12,000 50,000
(^4) 20,000 18,000 40,000
(^5) 25,000 20,000 35,000
(^6) 30,000 25,000 30,000
(^7) 35,000 30,000 25,000
AnnualCostsin Yearn for Market
Year, Valuein
n Operating Maintenance Insurance Yearn
(^1) $16,000 $ 5,000 $17,000 $80,000
(^2) 20,000 10,000 16,000 78,000
(^3) 24,000 15,000 15,000 76,000
(^4) 28,000 20,000 14,000 74,000
5 Data for the new paving machine have been ana-
32,000 25,000 12,000 72,000 lyzed. Its most economic life is at 8 years with a
(^6) 36,000 30,000 11,000 70,000
7 minimum EUAC of $62,000. Make a recommenda-
40,000 35,000 10,000 68,000 tion to Big-J CC regding the paving machine in
(^8) 44,000 40,000 10,000 66,000
9 question.
48,000 45,000 10,000 64,000
(^10) 52,000 50,000 10,000 62,000 13-22 VMIC Corp. has asked you to look at the follow41g
data. The interest rate is 10%.After considering the
data, answer questions(a)-(c).
Marginal EUACIf
Cost Data Kept n Years
Year, n Defender Challenger
1 $2500 $4500
2 2400 3600
3 2300 3000
4 2550 2600
5 2900 2700
6 3400 3500
7 4000 4000