A city water and waste-water department has a four-year-old sludge pump that was
ID: 2790582 • Letter: A
Question
A city water and waste-water department has a four-year-old sludge pump that was initially purchased for $50,000. This pump can be kept in service for an additional four years, or it can be sold for $30,000 and replaced by a new pump. The purchase price of the replacement pump is $50,000. The projected MVs and operating and maintenance costs over the four-year planning horizon are shown in the table that follows. Assuming the MARR is 10%, answer the following questions.
a. Calculate the marginal costs and EUAC values of the defender and challenger, respectively.
b. The economic lifetime of the challenger is _ years.
c. Are additional calculations necessary before making the replacement decision?
c. The defender should be replaced when?
Defender Challenger 9 YearMV at EOY O&M; CostsMV at EOY $25,000 21,000 17,000 14,000 $18,400 20,900 23,400 25,900 $40,000 32,000 24,000 16,000 O&M; Costs $11,500 14,000 16,500 19,000Explanation / Answer
a Market value Loss in Value Loss of Int AOC Mariginal cost year Aw of Marginal Cost 0 20,000 0 1 40,000 20,000 (2,000) -11500 6,500 6,500 2 32,000 (8,000) (4,000) -14000 (26,000) (8,976) 3 24,000 (8,000) (3,200) -16500 (27,700) (14,633) 4 16,000 (8,000) (2,400) -19000 (29,400) (17,815) Market value Loss in Value Loss of Int AOC Mariginal cost year Aw of Marginal Cost 0 30,000 0 1 25,000 (5,000) (3,000) -11500 (19,500) (19,500) 2 21,000 (4,000) (2,500) -14000 (20,500) (19,976) 3 17,000 (4,000) (2,100) -16500 (22,600) (20,769) 4 14,000 (3,000) (1,700) -19000 (23,700) (21,400) b economic life of challenger is 1 year c no, Additional calculations are not required d Defender should replaced now
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