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Chapter 11 Problems & Final Answers

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70 views

Chapter 11 Problems & Final Answers

Uploaded by

Mostafa Fouad
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Chapter 11

Economic Service Life:

11.08 For equipment that has a first cost of $10,000 and the estimated operating costs and year-
end salvage values shown below, determine the economic service life at i=10% per year.

Year Operating Cost, $ per Year Salvage Value, $


1 -1000 7000
2 -1200 5000
3 -1300 4500
4 -2000 3000
5 -3000 2000

Answer: ESL is 3 years (AW = $-3,819/year)

11.12 A construction company bought a 180,000 metric ton earth sifter at a cost of $65,000. The
company expects to keep the equipment a maximum of 7 years. The operating cost is
expected to follow the series described by 40,000 + 10,000 k, where k is the number of years
since it was purchased (k = 1, 2, . . . , 7). The salvage value is estimated to be $30,000 for
years 1 and 2 and $20,000 for years 3 through 7. At an interest rate of 10% per year,
determine the economic service life and the associated equivalent annual cost of the sifter.

Answer: ESL is 2 years (AW = $-77,929/year)

11.15 A piece of equipment has a first cost of $150,000, a maximum useful life of 7 years, and a
market (salvage) value described by the relation S = 120,000 - 20,000 k, where k is the
number of years since it was purchased. The salvage value cannot go below zero. The AOC
series is estimated using AOC = 60,000 + 10,000 k . The interest rate is 15% per year.
Determine the economic service life using regular AW computations.

Answer: ESL is 3 years (AW = $-127,489/year)

Replacement Study:

11.22 Solved as an example in the lecture.

11.24 A pulp and paper company is evaluating whether it should retain the current bleaching
process that uses chlorine dioxide or replace it with a proprietary “oxypure” process. The
relevant information for each process is shown. Use an interest rate of 15% per year to
perform the replacement study.
Current Process Oxypure Process

Original cost 6 years ago, $ -450 K -


Investment cost now, $ - -700 K
Current market value, $ 25 K -
Annual operating cost, $/year -180 K -70 K
Salvage value, $ 0 50
Remaining life, years 5 10

Answer: Select the defender/Retain the current process (AWD = $-187,458 AWC = $-207,014)

Replacement Study over a specified Study Period:

11.35 Solved as an example in the lecture.

11.36 The table below shows present worth calculations of the costs associated with using a
presently owned machine (defender) and a possible replacement (challenger) for different
numbers of years. Determine when the defender should be replaced using an interest rate of
10% per year and a 5-year study period.

Number of PW If kept stated Number of Years, $


Years Kept
Defender Challenger
1 -36,000 -89,000
2 -75,000 -96,000
3 -125,000 -102,000
4 -166,000 -113,000
5 -217,000 -149,000

Answer: Keep the defender 1 year and then replace it with the challenger.
(DDDDD: PW = -217,000, DDDDC: PW = -226,787, DDDCC: PW = -197,125, DDCCC: PW =
-159,293, DCCCC = -138,728, CCCCC: PW = -149,000)

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