Lumberjack Power, operator of a nuclear power plant, is planning to replace its
ID: 3122880 • Letter: L
Question
Lumberjack Power, operator of a nuclear power plant, is planning to replace its current equipment with some that is more environmentally friendly. The old equipment has annual operating expenses of $6750 and can be kept for 8 more years. The equipment will have a salvage value of $4000, if sold 8 years from now, and has a current market value of $24,000, if it is sold now. The new equipment has an initial cost of $62,000 and has estimated annual operating expenses of $6250 each year. The estimated market value of the new equipment is $19,000 after 8 years of operation. If the company's MARR is 16 % per year, should the equipment be replaced? Use a study period of 8 years and a present worth method Textbook Title: Engineering Economy, 16th Edition
ISBN: 978-0133439274
Explanation / Answer
Solution:
PWD (16%) = -$52,099.30
PWC (16%) = -$83,352.50
The PW of the defender is greater than the PW of the challenger;
the current equipment should be retained for now.
Explanation: Defender:
PWD (16%) = -24,000 - 6750 (P/A, 16%, 8) + 4000 (P/F, 16%, 8)
= -24,000 - 6750 (4.3436) + 4000 (0.3050)
= -52,099.30
Challenger: PWC (16%)
= - 62,000 - 6250 (P/A, 16%, 8) + 19,000 (P/A, 16%, 8)
= - 62,000 - 6250 (4.3436) + 19,000 (0.3050)
= - 83,352.50
The PW of the defender is greater than the PW of the challenger;
the current equipment should be retained for now
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.