A specialty concrete mixer used in construction was purchased for $300,000 7 yea

Question

A specialty concrete mixer used in construction was purchased for $300,000 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 and a MARR of 15% to see if the concrete mixer should be replaced if the old mixer is sold for its market value of $65,000.

Explanation / Answer

Statement showing evaluation of replacement proposal

Advice : Concrete mixture should not be replaced.

Particulars Time Amount PVF@15% PV Cash Outflow Purchase cost of new equipment 0 $375000 1 $375000 Less: Sale of old equipment 0 ($65000) 1 ($65000) P.V. of initial cash outflow (A) $310000 Cash inflow Cost savings 1-8 $65000 4.4873 $291675 P.V. of cash inflow (B) $291675 NPV [B-A] ($18325)

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