- -.
What Is the Basic Comparison? 403to "race" against the defender (in Figure 13-2) is the one having the lowest minimum cost
,life of all the competing mutually exclusivechallengers.
To calculate the minimum cost life of an asset, determine the EUAC that results if
the asset is kept for each possible life less than or equal to its useful life. As is illustrated
in Example 13-1, the EUAC tends to be high if the asset is kept only a few years, then
decreases to some minimum EUAC and increases again as the asset ages. By identifying
the number of years at which the EUAC is a minimum and then keeping the asset for that
number of years, we are minimi7.ingthe yearly cost of ownership.Example 13-1 illustrates
how minimum cost life is calculated for a new asset.A piece of machinerycosts $7500 and has no salvagevalueafter it is installed. Themanufacturer's
warranty will pay the first year's maintenance and repair costs. In the second year, maintenance
costs will be $900, and this item will increase on a $900 arithmetic gradient in subsequent years,
Also, operating expenses for the machinery will be $500 'the first year and will increase on a
$400 arithmetic gradient in the following years. If interest is 8%, compute the useful life of th~
machinery that results in a minimum EUAC. That is, find its minimum cost life.SOLUTION'-:=&i:-.~' ." " .".. .' II; c: .~ ',' : :::11I ~ =II:I!C;;::I ;; ~1Iii,!! '==. ;II--:- .;!I;.. =:ii~, .','. = iiii
- 11le tot.~lEUACdata are plotted in Figure 13-3. From either the tabulation gr tbefigure, we see
thattb~lminimum cost life of the machinery is 4 yeaJ."S,with a II1it:).imUJ.nEUACof $4589£or each
==,.gtJ;hQ.~,!i1a¥e~ === -.- == ;;, ==11::II' "III = 1;;1=_ II '11''11'11~ i::IIi:II 11;11III:== :m:>"m===-
--- ---I
tIf Retired at the End of Year nEUACof Capital EUACof Maintenance EUACof
Recovery Costs: and Repair Costs: Operating Costs:
Year, n $7500(AjP,8%, n) $900(A/G,8%, n) $500 +$400(A/G,8%, n) EUACTotal$8100 $ (^0) $ 500 $8600
.^42064336925331
2910 854 880 4644
2264 1264 1062 4589+-
5 1878 1661 1238 4779
- g^162220481410 5081 ,
r 1440 2425 1578 5443
$^130527891740 .5834
9, 1200 3142 1896 6239
10 1117 3484 2048 6650
11.^1050381621967063
(^121) " 995 4136 2338 7470'
- 948 4446 2476 7871
14 909 4746 2609 8265
1$1'....... 87q 5035 2738 8648
""