A specialty concrete mixer used in construction was purchased for $350,000 7 yea
ID: 1212366 • Letter: A
Question
A specialty concrete mixer used in construction was purchased for $350,000 7 years ago. Its annual O&M costs are $105,000. At the end of the 8-year planning horizon, the mixer will have a salvage value of $5,000. If the mixer is replaced, a new mixer will require an initial investment of $375,000. At the end of the 8-year planning horizon, it will have a salvage value of $45,000. Its annual O&M cost will be only $40,000 due to newer technology. Analyze this using an EUAC measure (cash flow approach) and a MARR of 10% to see if the concrete mixer should be replaced if the old mixer is sold for its market value of $65,000.
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Explanation / Answer
EUAC of old mixer = - $ 350,000 ( A/P 10% , 8 years ) + $ 5000 ( A/F 10% , 8 years ) - $ 105,000
EUAC of old mixer = - $ 350,000 X 0.1874 + $ 5000 X 0.08744 - $ 105,000
EUAC of old mixer = -$ 170,152.80
EUAC of new mixer = - $ 310,000 ( A/P 10% , 8 years ) + $ 45000 ( A/F 10% , 8 years ) - $ 40,000
EUAC of new mixer = - $ 310,000 X 0.1874 + $ 45000 X 0.08744 - $ 40,000
EUAC of new mixer = -$ 94,159.20
The EUAC of new mixer is less than the old mixer , hence the new mixer should be purcased.
Old mixer New mixer Initial cost $350,000 ($375,000 - $ 65,000) salvage value $5,000 $45,000 O&M cost $105,000 $40,000 MARR 10% 10%Related Questions
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