(15 points) The plant manager of Peculiar Processes has just purchased a piece o
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Question
(15 points) The plant manager of Peculiar Processes has just purchased a piece of unusual machinery for $10,000. Its resale value at the end of year one is estimated to be $3,000 and it will rise at the rate of $500 per year because it is sought by antique collectors. The maintenance cost is expected to be $300 per year for each of the first three years, and then it is expected to double each year after that. Thus the fourth year maintenance is expected to be S600; the fifth year maintenance, $1,200, and so on. Based on a 15% before tax MARR, what is the economic life of this machinery? 4. Nes P-1o,00o 15 %Explanation / Answer
Thus, from the above table, we can conclude that from 8th year onwards the maintenance cost of machinery exceeds the realizable resale value. So, the economic life of this machinery is 7 years.
Year Resale value ( in $) Maintenance cost (in $) Surplus(in $) 1 3000 300 2700 2 3500 300 3200 3 4000 300 3700 4 4500 600 3900 5 5000 1200 3800 6 5500 2400 3100 7 6000 4800 1200 8 6500 9600 (3100)Related Questions
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