Engineering Economic Analysis

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432 REPLACEMENTANALYSIS

I

13-9 The Clap Chemical Company needs a large insulated

stainless s~eeltank.for the expansion of its plant. Clap

has located such a tank. at a recently closed brewery.

The brewery has offered to sell the tank. for $15,000

delivered to the chemical plant. The price is so low

that Clap believes it can sell the tank. at any future

time and recover its $15,000 investment.

The outside of the tank.is covered with heavy in-

sulation that requires considerable maintenance with

estimated costs as follows:

Year

o

1

2

3

4

5'

Insulation

Maintenance Cost

$2000

500

1000

1500

2000

2500

(a) Based on a 15% before-tax MARR, what life of

the insulated tank. has the lowest EUAC?

(b)Is it likely that the insulated tank.will be replaced

by another tank. at the end of the period with the

lowest EUAC? Explain.

13-10 The plant manager has just purchased a piece of un-

usual machinery for $10,000. Its resale value at the

end of 1 year is estimated to be $3000, because the

device is sought by antique collectors, resale value is

rising at the rate of $500 per year.

The maintenance cost is expected to be $300 per

year for each of the first 3 years, and then it is expected

to double each year after that. Thus the fourth-year

maintenance will be $600; the fifth-year maintenance,

$1200, and so on. Based on a 15% before-tax MARR,

what life of this machinery has the lowest EUAC?

13-11 In a replacement analysis problem, the following facts
are known:

Initial cost

Annual Maintenance

$12,000

None for the first 3 years

$2000 at the end of the

fourth year

$2000 at the end of the

fifth year

Increasing $2500 per year

after the fifth year

($4500 at the end of the

sixth year, $7000 at the

end of the seventh year, etc.)

Actual salvage value in any year is zero. Assume a

10% interest rate and ignore income taxes. Compute

the life for this challenger having the lowest EUAC.

(Answer:5 years)

13-12 An injection molding machine has a first cost of

$1,050,000 and a salvage value of $225,000 in any

year the machine is sold. The maintenance and op-

erating cost is $235,000 with an annual gradient

of $75,000. The MARR is 10%. What is the most

economic life?

13-13 Bill's father read that, at the end of each year, an aut~

mobile is worth 25% less than it was at the beginning

of the year. After a car is three years old, the rate of

decline reduces to 15%. Maintenance and operating'

costs, on the other hand, increase as the age of the car

increases. Because of the manufacturer's warranty,

first-year maintenance is very low.

Age of Car

(years)

1 2 3 4 5 6 7

Maintenance

Expense

$ 50

150

180

200

300

390

500

Bill decided this is a good economic analysis problem.

Bill's dad wants to keep his annual cost of automo-

bile ownership low. The car Bill's dad prefers costs

$11,200 new. Should he buy a new or a used car and,

if used, when would you suggest he buy it, and how

long should it be kept? Give a practical, rather than

a theoretical, solution. (Answer:Buy a 3-year-old

car and keep it 3 years.).

13-14 A professor of engineering economics owns a 1996

automobile. In the past 12 months, he has paid $2000

to replace the transmission, bought two new tires for

$160, and installed a new tape deck for $110. He

wants to keep the car for 2 more years because he

invested money 3 years ago in a 5-year certificate of

deposit, which is earmarked to pay for his dream ma-

chine, a red European sports car. Today the old car's

engine failed. The professor has two alternatives. He

can have the engine overhauled at a cost of $1800 and

then most likely have to pay another $800 per year for

the next 2 years for maintenance. The car will have no

salvage value at that time. Alternatively, a colleague

offered to make the professor a $5000 loan to buy