PROBLEM 7.10
INSIDER’S VIEWPOINT
a KEEP OLD TURRET LATHE AND CONTRACT OUT REPLACE WITH NEW TURRET LATHE
MARKET VALUE = $18,000.00 FIRST COST = $65,000.00
ANNUAL CONTRACT COST = $13,000.00 ANNUAL O&M COST = $10,000.00
ANNUAL O&M COST = $8,000.00 SALVAGE VALUE = $65,000*0.7^8 $3,747.12
SALVAGE VALUE = $3,000.00
PLANNING HORIZON = 8 PLANNING HORIZON = 8
MARR = 15.00% MARR = 15.00%
EOY CF EXISTING EOY CF NEW
0 0 -$47,000.00
1 -$21,000.00 1 -$10,000.00
2 -$21,000.00 2 -$10,000.00
3 -$21,000.00 3 -$10,000.00
4 -$21,000.00 4 -$10,000.00
5 -$21,000.00 5 -$10,000.00
6 -$21,000.00 6 -$10,000.00
7 -$21,000.00 7 -$10,000.00
8 -$18,000.00 8 -$6,252.88
b EUAC=8000+13000-3000(A|F 15%,8) EUAC=(65000-18000)(A|P 15%,8)+10000-3747.12(A|F 15%,8)=
EUAC=8000+13000-3000(0.07285) $20,781.45 EUAC=(65000-18000)(0.22285)+10000-3747.12(0.07285)= $20,200.97
RECOMMENDATION: REPLACE WITH NEW TURRET LATHE
PW= -$93,253.05 PW= -$90,648.27
EUAC= $20,781.45 EUAC= $20,200.98
RECOMMENDATION: REPLACE WITH NEW TURRET LATHE
EUAC DIFFERENCE = $580.47
OUTSIDER’S VIEWPOINT ANALYSIS
c KEEP OLD TURRET LATHE AND CONTRACT OUT REPLACE WITH NEW TURRET LATHE
MARKET VALUE = $18,000.00 FIRST COST = $65,000.00
ANNUAL CONTRACT COST = $13,000.00 ANNUAL O&M COST = $10,000.00
ANNUAL O&M COST = $8,000.00 SALVAGE VALUE = $65,000*0.7^8 $3,747.12
SALVAGE VALUE = $3,000.00
PLANNING HORIZON = 8 PLANNING HORIZON = 8
MARR = 15.00% MARR = 15.00%
EOY CF EXISTING EOY CF NEW
0 -$18,000.00 0 -$65,000.00
1 -$21,000.00 1 -$10,000.00
2 -$21,000.00 2 -$10,000.00
3 -$21,000.00 3 -$10,000.00
4 -$21,000.00 4 -$10,000.00
5 -$21,000.00 5 -$10,000.00
6 -$21,000.00 6 -$10,000.00
7 -$21,000.00 7 -$10,000.00
8 -$18,000.00 8 -$6,252.88
d EUAC=18000(A|P 15%,8)+8000+13000-3000(A|F 15%,8) EUAC=65000(A|P 15%,8)+10000-3747.12(A|F 15%,8)=
EUAC=18000(0.22285)+8000+13000-3000(0.07285) $24,792.75 EUAC=65000(0.22285)+10000-3747.12(0.07285)= $24,212.27
RECOMMENDATION: REPLACE WITH NEW TURRET LATHE
PW= -$111,253.05 PW= -$108,648.27
EUAC= $24,792.75 EUAC= $24,212.28
RECOMMENDATION: REPLACE WITH NEW TURRET LATHE
EUAC DIFFERENCE = $580.47
PROBLEM 7.11
INSIDER’S VIEWPOINT APPROACH
a KEEP MULTI-AXIS NC MACHINE AND BUY MACHINE S REPLACE MULTI-AXIS NC MACHINE WITH MACHINE L
MARKET VALUE OF EXISTING MACHINE = $70,000.00 CASH PRICE OF MACHINE L WITH NO TRADE IN $450,000.00
ANNUAL O&M COST = $50,000.00 ANNUAL O&M COST = $74,000.00
SALVAGE VALUE IN 5 YEARS= $0.00 SALVAGE VALUE ($450,000*0.8^5)= $147,456.00
FIRST COST MACHINE S = $210,000.00
ANNUAL O&M COST EXISTING = $37,000.00
SALVAGE VALUE MACHINE S ($210,000*0.8^5= $68,812.80
PLANNING HORIZON = 5 PLANNING HORIZON = 5
MARR = 20.00% MARR = 20.00%
EOY CF EXISTING EOY CF NEW
0 -$210,000.00 0 -$380,000.00
1 -$87,000.00 1 -$74,000.00
2 -$87,000.00 2 -$74,000.00
3 -$87,000.00 3 -$74,000.00
4 -$87,000.00 4 -$74,000.00
5 -$18,187.20 5 $73,456.00
b EUAC=210000(A|P 20%,5)+50000+37000-68812.80(A|F 20%,5) EUAC=(450000-70000)(A|P 20%,5)+74000-147456.00(A|F 20%,5)=
EUAC=210000(0.33438)+87000-68812.80(0.13438) $147,972.74 EUAC=380000(0.33438)+74000-147456.00(0.13438)= $181,249.26
RECOMMENDATION: KEEP MULTI-AXIS MACHINE AND BUY MACHINE S
PW= -$442,528.94 PW= -$542,046.04
EUAC= $147,972.69 EUAC= $181,249.19
RECOMMENDATION: KEEP MULTI-AXIS MACHINE AND BUY MACHINE S
EUAC DIFFERENCE = $33,276.50
OUTSIDER’S VIEWPOINT APPROACH
c KEEP MULTI-AXIS NC MACHINE AND BUY MACHINE S REPLACE MULTI-AXIS NC MACHINE WITH MACHINE L
MARKET VALUE OF EXISTING MACHINE = $70,000.00 CASH PRICE OF MACHINE L WITH NO TRADE IN $450,000.00
ANNUAL O&M COST = $50,000.00 ANNUAL O&M COST = $74,000.00
SALVAGE VALUE IN 5 YEARS= $0.00 SALVAGE VALUE ($450,000*0.8^5)= $147,456.00
FIRST COST MACHINE S = $210,000.00
ANNUAL O&M COST EXISTING = $37,000.00
SALVAGE VALUE MACHINE S ($210,000*0.8^5= $68,812.80
PLANNING HORIZON = 5 PLANNING HORIZON = 5
MARR = 20.00% MARR = 20.00%
EOY CF EXISTING EOY CF NEW
0 -$280,000.00 0 -$450,000.00
EUAC= $171,379.27 EUAC= $204,655.77
RECOMMENDATION: KEEP MULTI-AXIS MACHINE AND BUY MACHINE S
EUAC DIFFERENCE = $33,276.50
PROBLEM 7.12
INSIDER’S VIEWPOINT APPROACH
aKEEP EXISTING HVAC UNIT AND BUY ADDITIONAL UNIT REPLACE EXISTING HVAC UNIT WITH NEW LARGER UNIT
MARKET VALUE OF EXISTING HVAC = $7,000.00 FIRST COST = $35,000.00
NEXT YEAR’S OPERATING COST OF EXISTING HVAC = $3,250.00 FIRST YEAR OPERATING COST = $3,700.00
INCREMENTAL YEARLY OPERATING COST EXISTING = $250.00 INCREMENTAL YEARLY OPERATING COST = $200.00
SALVAGE VALUE IN 10 YEARS EXISTING UNIT = $0.00 SALVAGE VALUE IN 10 YEARS = $7,000.00
FIRST COST ADDITIONAL UNIT = $18,000.00
FIRST YEAR OPERATING COST ADDITIONAL UNIT= $1,800.00
INCREMENTAL YEARLY OPERATING COST ADDITIONAL = $100.00
SALVAGE VALUE ADDITIONAL IN 10 YEARS = $3,000.00
PLANNING HORIZON = 10 PLANNING HORIZON = 10
MARR = 20.00% MARR = 20.00%
EOY CF EXIST+ADDN EOY CF NEW
0 -$18,000.00 0 -$28,000.00
1 -$5,050.00 1 -$3,700.00
2 -$5,400.00 2 -$3,900.00
3 -$5,750.00 3 -$4,100.00
4 -$6,100.00 4 -$4,300.00
5 -$6,450.00 5 -$4,500.00
6 -$6,800.00 6 -$4,700.00
7 -$7,150.00 7 -$4,900.00
8 -$7,500.00 8 -$5,100.00
9 -$7,850.00 9 -$5,300.00
10 -$5,200.00 10 $1,500.00
b EUAC=18000(A|P 20%,10)+5050+350(A|G 20%,10)-3000(A|F 20%,10) EUAC=(35000-7000)(A|P 20%,10)+3700+200(A|G 20%,10)-7000(A|F 20%,10)=
EUAC=18000(0.23852)+4800+350(3.07386)-3000(0.03852) $10,303.65 EUAC=(35000-7000)(0.23852)+3700+200(3.07386)-7000(0.03852)= $10,723.69
PW=EUAC*(P|A 20%,10) PW=EUAC*(P|A 20%,10)
PW=EUAC(4.19247) -$43,197.75 PW=EUAC(4.19247) -$44,958.76
RECOMMENDATION: KEEP EXISTING HVAC UNIT
AND BUY ADDITIONAL UNIT
PW= -$43,197.95 PW= -$44,959.02
EUAC= $10,303.69 EUAC= $10,723.75
RECOMMENDATION: KEEP EXISTING HVAC UNIT
AND BUY ADDITIONAL UNIT
PW DIFFERENCE = $1,761.08
OUTSIDER’S VIEWPOINT APPROACH
cKEEP EXISTING HVAC UNIT AND BUY ADDITIONAL UNIT REPLACE EXISTING HVAC UNIT WITH NEW LARGER UNIT
MARKET VALUE OF EXISTING HVAC = $7,000.00 FIRST COST = $35,000.00
NEXT YEAR’S OPERATING COST OF EXISTING HVAC = $3,250.00 FIRST YEAR OPERATING COST = $3,700.00
INCREMENTAL YEARLY OPERATING COST EXISTING = $250.00 INCREMENTAL YEARLY OPERATING COST = $200.00
SALVAGE VALUE IN 10 YEARS EXISTING UNIT = $0.00 SALVAGE VALUE IN 10 YEARS = $7,000.00
FIRST COST ADDITIONAL UNIT = $18,000.00
FIRST YEAR OPERATING COST ADDITIONAL UNIT= $1,800.00
INCREMENTAL YEARLY OPERATING COST ADDITIONAL = $100.00
SALVAGE VALUE ADDITIONAL IN 10 YEARS = $3,000.00
PLANNING HORIZON = 10 PLANNING HORIZON = 10
MARR = 20.00% MARR = 20.00%
EOY CF EXIST+ADDN EOY CF NEW
0 -$25,000.00 0 -$35,000.00
1 -$5,050.00 1 -$3,700.00
2 -$5,400.00 2 -$3,900.00
3 -$5,750.00 3 -$4,100.00
4 -$6,100.00 4 -$4,300.00
5 -$6,450.00 5 -$4,500.00
6 -$6,800.00 6 -$4,700.00
7 -$7,150.00 7 -$4,900.00
8 -$7,500.00 8 -$5,100.00
9 -$7,850.00 9 -$5,300.00
10 -$5,200.00 10 $1,500.00
EUAC=(18000+4000)(A|P 20%,10)+4800+350(A|G 20%,10)-3000(A|F 20%,10) EUAC=35000(A|P 20%,10)+3700+200(A|G 20%,10)-7000(A|F 20%,10)=
EUAC=(18000+4000)(0.23852)+4800+350(3.07386)-3000(0.03852) $11,973.29 EUAC=35000(0.23852)+3700+200(3.07386)-7000(0.03852)= $12,393.33
PW=EUAC*(P|A 20%,10) PW=EUAC*(P|A 20%,10)
PW=EUAC(4.19247) -$50,197.66 PW=EUAC(4.19247) -$51,958.67
RECOMMENDATION: KEEP EXISTING HVAC UNIT
AND BUY ADDITIONAL UNIT
d PW= -$50,197.95 PW= -$51,959.02
EUAC= $11,973.35 EUAC= $12,393.41
RECOMMENDATION: KEEP EXISTING HVAC UNIT
AND BUY ADDITIONAL UNIT
PW DIFFERENCE = $1,761.08
PROBLEM 7.13
INSIDER‘S VIEWPOINT APPROACH
a ALT A – KEEP EXISTING AUGER ALT B – REPLACE EXISTING AUGER WITH NEW AUGER ALT C – REPLACE EXISTING AUGER WITH NEW “TREATED AUGER” ALT D – REPLACE EXISTING AUGER WITH COMPETITOR’S SERVICE
MARKET VALUE = $12,000.00 FIRST COST = $54,000.00 FIRST COST = $68,000.00 BEGINNING OF YEAR LEASE COST = $10,000.00
SALVAGE VALUE = $0.00 TRADE-IN VALUE OF EXISTING AUGER = $15,000.00 TRADE-IN VALUE OF EXISTING AUGER = $17,000.00 MARKET VALUE = $12,000.00
O&M COST YEARS 1-7 = $13,000.00 SALVAGE VALUE = $14,000.00 SALVAGE VALUE = $18,000.00 ANNUAL O&M COST END OF YEAR = $6,000.00
O&M OF NEW AUGER YEARS 1-7 = $6,000.00 O&M OF NEW AUGER YEARS 1-7 = $3,000.00
PLANNING HORIZON = 7 PLANNING HORIZON = 7 PLANNING HORIZON = 7 PLANNING HORIZON = 7
MARR = 15.00% MARR = 15.00% MARR = 15.00% MARR = 15.00%
RECOMMENDATION: KEEP EXISTING AUGER
EOY CF EOY CF EOY CF EOY CF
0 $0.00 0 -$39,000.00 0 -$51,000.00 0 $2,000.00
1 -$13,000.00 1 -$6,000.00 1 -$3,000.00 1 -$16,000.00
2 -$13,000.00 2 -$6,000.00 2 -$3,000.00 2 -$16,000.00
3 -$13,000.00 3 -$6,000.00 3 -$3,000.00 3 -$16,000.00
4 -$13,000.00 4 -$6,000.00 4 -$3,000.00 4 -$16,000.00
5 -$13,000.00 5 -$6,000.00 5 -$3,000.00 5 -$16,000.00
6 -$13,000.00 6 -$6,000.00 6 -$3,000.00 6 -$16,000.00
7 -$13,000.00 7 $8,000.00 7 $15,000.00 7 -$6,000.00
b EUAC=13000 EUAC=(54000-15000)(A|P 15%,7)+6000-14000(A|F 15%,7)= EUAC=(68000-17000)(A|P 15%,7)+3000-18000(A|F15%,7)= EUAC=-12000(A|P 15%,7)+10000(F|P15,1)+6000=
EUAC=13000 $13,000.00 EUAC=39000(0.24036)+6000-14000(0.09036)= $14,109.00 EUAC=51000(0.24036)+3000-18000(0.09036)= $13,631.88 EUAC=-12000(0.24036)+10000(1.15)+6000= $14,615.68
RECOMMENDATION: KEEP EXISTING AUGER
PW= -$54,085.46 PW= -$58,699.40 PW= -$56,714.39 PW= -$60,807.35
EUAC= $13,000.00 EUAC= $14,109.01 EUAC= $13,631.89 EUAC= $14,615.68
RECOMMENDATION: KEEP EXISTING AUGER
OUTSIDER’S VIEWPOINT APPROACH
c KEEP EXISTING AUGER REPLACE EXISTING AUGER WITH NEW AUGER REPLACE EXISTING AUGER WITH NEW TREATED AUGER REPLACE EXISTING AUGER WITH COMPETITOR’S SERVICE
MARKET VALUE = $12,000.00 FIRST COST = $54,000.00 FIRST COST = $68,000.00 BEGINNING OF YEAR LEASE COST = $10,000.00
TRADE-IN VALUE OF EXISTING AUGER = $15,000.00 TRADE-IN VALUE OF EXISTING AUGER = $17,000.00 MARKET VALUE = $12,000.00
REDUCED FIRST COST SINCE TRADE-IN $3000 OVER MV $51,000.00 REDUCED FIRST COST SINCE TRADE-IN $5000 OVER MV $63,000.00
SALVAGE VALUE = $0.00 SALVAGE VALUE = $14,000.00 SALVAGE VALUE = $18,000.00
O&M COST YEARS 1-7 = $13,000.00 O&M OF NEW AUGER YEARS 1-7 = $6,000.00 O&M OF NEW AUGER YEARS 1-7 = $3,000.00 ANNUAL O&M COST END OF YEAR = $6,000.00
PLANNING HORIZON = 7 PLANNING HORIZON = 7 PLANNING HORIZON = 7 PLANNING HORIZON = 7
MARR = 15.00% MARR = 15.00% MARR = 15.00% MARR = 15.00%
EOY CF EOY CF EOY CF EOY CF
0 -$12,000.00 0 -$51,000.00 0 -$63,000.00 0 -$10,000.00
1 -$13,000.00 1 -$6,000.00 1 -$3,000.00 1 -$16,000.00
2 -$13,000.00 2 -$6,000.00 2 -$3,000.00 2 -$16,000.00
3 -$13,000.00 3 -$6,000.00 3 -$3,000.00 3 -$16,000.00
4 -$13,000.00 4 -$6,000.00 4 -$3,000.00 4 -$16,000.00
5 -$13,000.00 5 -$6,000.00 5 -$3,000.00 5 -$16,000.00
6 -$13,000.00 6 -$6,000.00 6 -$3,000.00 6 -$16,000.00
7 -$13,000.00 7 $8,000.00 7 $15,000.00 7 -$6,000.00
d EUAC=13000+12000(A|P 15%,7)= EUAC=51000(A|P 15%,7)+6000-14000(A|F 15%,7)= EUAC=63000(A|P 15%,7)+3000-18000(A|F15%,7)= EUAC=10000(F|P15,1)+6000=
EUAC=13000+12000(0.24036)= $15,884.32 EUAC=51000(0.24036)+6000-14000(0.09036)= $16,993.32 EUAC=63000(0.24036)+3000-18000(0.09036)= $16,516.20 EUAC=10000(1.15)+6000= $17,500.00
RECOMMENDATION: KEEP EXISTING AUGER
PW= -$66,085.46 PW= -$70,699.40 PW= -$68,714.39 PW= -$72,807.35
EUAC= $15,884.32 EUAC= $16,993.33 EUAC= $16,516.22 EUAC= $17,500.00
RECOMMENDATION: KEEP EXISTING AUGER
PROBLEM 7.14
a KEEP EXISTING MATERIAL HANDLING SYSTEM TRADE IN EXISTING SYSTEM ON NEW MH SYSTEM SELL EXISTING SYSTEM AND LEASE NEW MH SYSTEM
TRADE-IN VALUE NOW IF NEW SYSTEM PURCHASED = $20,000.00 FIRST COST IF EXISTING UNIT IS TRADED IN = $250,000.00 BEGINNING OF YEAR LEASE COST = $26,000.00
ACTUAL MARKET VALUE NOW = $10,000.00 ADJ BASIS DUE TO INFLATED TRADE-IN = $240,000.00 ANNUAL O&M COST END OF YEAR = $9,000.00
SALVAGE VALUE IN 8 YEARS = $5,000.00 SALVAGE VALUE = $25,000.00
ANNUAL O&M COST OF EXISTING SYSTEM = $32,000.00 O&M OF NEW SYSTEM = $18,000.00
PLANNING HORIZON = 8 PLANNING HORIZON = 8 PLANNING HORIZON = 8
MARR = 15.00% MARR = 15.00% MARR = 15.00%
EUAC=32000-5000(A|F 15%,8)= EUAC=(250000-20000)(A|P 15%,8)+18000-25000(A|F 15%,8)= EUAC=26000(F|P 15%,1)+9000-10000(A|P15%,8)=
EUAC=32000-5000(0.07285)= $31,635.75 EUAC=(250000-20000)(0.22285)+18000-25000(0.07285)= $67,434.25 EUAC=26000(1.15)+9000-10000(0.22285)= $36,671.50
EOY CF EXISTING EOY CF NEW EOY CF LEASE
0 $0.00 0 -$230,000.00 0 -$16,000.00
1 -$32,000.00 1 -$18,000.00 1 -$35,000.00
2 -$32,000.00 2 -$18,000.00 2 -$35,000.00
3 -$32,000.00 3 -$18,000.00 3 -$35,000.00
4 -$32,000.00 4 -$18,000.00 4 -$35,000.00
5 -$32,000.00 5 -$18,000.00 5 -$35,000.00
6 -$32,000.00 6 -$18,000.00 6 -$35,000.00
7 -$32,000.00 7 -$18,000.00 7 -$35,000.00
8 -$27,000.00 8 $7,000.00 8 -$9,000.00
PW= -$141,959.78 PW= -$302,599.24 PW= -$164,556.81
EUAC= $31,635.75 EUAC= $67,434.27 EUAC= $36,671.50
RECOMMENDATION: TRADE IN EXISTING SYSTEM ON NEW MH SYSTEM
b KEEP EXISTING MATERIAL HANDLING SYSTEM TRADE IN EXISTING SYSTEM ON NEW MH SYSTEM SELL EXISTING SYSTEM AND LEASE NEW MH SYSTEM
TRADE-IN VALUE NOW IF NEW SYSTEM PURCHASED = $20,000.00 FIRST COST IF EXISTING UNIT IS TRADED IN = $250,000.00 BEGINNING OF YEAR LEASE COST = $26,000.00
ACTUAL MARKET VALUE NOW = $10,000.00 ADJ BASIS DUE TO INFLATED TRADE-IN = $240,000.00 ANNUAL O&M COST END OF YEAR = $9,000.00
SALVAGE VALUE IN 8 YEARS = $5,000.00 SALVAGE VALUE = $25,000.00
ANNUAL O&M COST OF EXISTING SYSTEM = $32,000.00 O&M OF NEW SYSTEM = $18,000.00
PLANNING HORIZON = 8 PLANNING HORIZON = 8 PLANNING HORIZON = 8
MARR = 15.00% MARR = 15.00% MARR = 15.00%
EUAC=10000(A|P 15%,8)+32000-5000(A|F 15%,8)= EUAC=240000(A|P 15%,8)+18000-25000(A|F 15%,8)= EUAC=26000(F|P 15%,1)+9000=
EUAC=10000(0.22285)+32000-5000(0.07285)= $33,864.25 EUAC=240000(0.22285)+18000-25000(0.07285)= $69,662.75 EUAC=26000(1.15)+9000= $38,900.00
EOY CF EXISTING EOY CF NEW EOY CF LEASE
0 -$10,000.00 0 -$240,000.00 0 -$26,000.00
1 -$32,000.00 1 -$18,000.00 1 -$35,000.00
2 -$32,000.00 2 -$18,000.00 2 -$35,000.00
3 -$32,000.00 3 -$18,000.00 3 -$35,000.00
4 -$32,000.00 4 -$18,000.00 4 -$35,000.00
5 -$32,000.00 5 -$18,000.00 5 -$35,000.00
6 -$32,000.00 6 -$18,000.00 6 -$35,000.00
7 -$32,000.00 7 -$18,000.00 7 -$35,000.00
8 -$27,000.00 8 $7,000.00 8 -$9,000.00
PW= -$151,959.78 PW= -$312,599.24 PW= -$174,556.81
EUAC= $33,864.25 EUAC= $69,662.77 EUAC= $38,900.00
RECOMMENDATION: TRADE IN EXISTING SYSTEM ON NEW MH SYSTEM
PROBLEM 7.15
a KEEP EXISTING PUMP TRADE IN EXISTING PUMP
TRADE-IN VALUE NOW IF NEW PUMP PURCHASED = $4,000.00 FIRST COST IF EXISTING UNIT IS TRADED IN = $18,000.00
ACTUAL MARKET VALUE NOW = $4,000.00 ADJ BASIS DUE TO INFLATED TRADE-IN = $18,000.00
SALVAGE VALUE IN 4 YEARS = $0.00 SALVAGE VALUE = $9,000.00
ANNUAL O&M COST OF EXISTING PUMP = $8,000.00 O&M OF NEW PUMP = $4,500.00
PLANNING HORIZON = 4 PLANNING HORIZON = 4
MARR = 10.00% MARR = 10.00%
EUAC=(18000-4000)(A|P 10%,4)+4500-9000(A|F 10%,4)=
EUAC=8000 $8,000.00 EUAC=(18000-4000)(0.31547)+4500-9000(0.21547)= $6,977.35
EOY CF EXISTING EOY CF NEW
0$0.00 0 -$14,000.00
1 -$8,000.00 1 -$4,500.00
2 -$8,000.00 2 -$4,500.00
3 -$8,000.00 3 -$4,500.00
4 -$8,000.00 4 $4,500.00
PW= -$25,358.92 PW= -$22,117.27
EUAC= $8,000.00 EUAC= $6,977.35 $1,022.65
= EUAC Δ
RECOMMENDATION: TRADE IN EXISTING PUMP ON NEW PUMP
b KEEP EXISTING PUMP TRADE IN EXISTING PUMP ON NEW PUMP
TRADE-IN VALUE NOW IF NEW PUMP PURCHASED = $4,000.00 FIRST COST IF EXISTING UNIT IS TRADED IN = $18,000.00
ACTUAL MARKET VALUE NOW = $4,000.00 ADJ BASIS DUE TO INFLATED TRADE-IN = $18,000.00
SALVAGE VALUE IN 4 YEARS = $0.00 SALVAGE VALUE = $9,000.00
ANNUAL O&M COST OF EXISTING SYSTEM = $8,000.00 O&M OF NEW SYSTEM = $4,500.00
PLANNING HORIZON = 4 PLANNING HORIZON = 4
MARR = 10.00% MARR = 10%
EUAC=4000(A|P 10%,4)+8000= EUAC=18000(A|P 10%,4)+4500-9000(A|F 10%,4)=
EUAC=4000(0.31547)+32000= $9,261.88 EUAC=18000(0.31547)+4500-9000(0.21547)= $8,239.23
EOY CF EXISTING EOY CF NEW
0 -$4,000.00 0 -$18,000.00
1 -$8,000.00 1 -$4,500.00
2 -$8,000.00 2 -$4,500.00
3 -$8,000.00 3 -$4,500.00
4 -$8,000.00 4 $4,500.00
PW= -$29,358.92 PW= -$26,117.27
EUAC= $9,261.88 EUAC= $8,239.24 $1,022.65
= EUAC Δ
RECOMMENDATION: TRADE IN EXISTING SYSTEM ON NEW MH SYSTEM
PROBLEM 7.16
INSIDER’S VIEWPOINT
KEEP OLD TURRET LATHE REPLACE WITH NEW TURRET LATHE
MARKET VALUE = $16,000.00 FIRST COST = $45,000.00
ANNUAL O&M COST = $4,200.00 ANNUAL O&M COST = $1,600.00
SALVAGE VALUE = $4,000.00 SALVAGE VALUE = $45,000*0.7^7 $3,705.94
PLANNING HORIZON = 7
MARR = 12.00% PLANNING HORIZON = 7
MARR = 12.00%
EOY CF EXISTING
0 $0.00 EOY CF NEW
1 -$4,200.00 0 -$29,000.00
2 -$4,200.00 1 -$1,600.00
3 -$4,200.00 2 -$1,600.00
4 -$4,200.00 3 -$1,600.00
5 -$4,200.00 4 -$1,600.00
6 -$4,200.00 5 -$1,600.00
7 –$200.00 6 -$1,600.00
7 $2,105.94
EUAC=4200-4000(A|F 12%,7) EUAC=(45000-16000)(A|P 12%,7)+1600-3706.94(A|F 12%,7)=
EUAC=4200-4000(0.09912) $3,803.52 EUAC=(45000-16000)(0.21912)+1600-3706.94(0.09912)= $7,587.15
PW= -$17,358.38 PW= -$34,625.63
EUAC= $3,803.53 EUAC= $7,587.09
RECOMMENDATION: RETAIN THE OLD TURRET LATHE
PROBLEM 7.17
aINSIDER’S VIEWPOINT APPROACH
KEEP EXISTING CRANE AND OVERHAUL IT REPLACE WITH NEW CRANE
MARKET OR TRADE-IN VALUE = $14,000.00
OVERHAUL COST = $6,000.00 FIRST COST = $36,000.00
ANNUAL O&M COST = $5,000.00 ANNUAL O&M COST = $2,500.00
SALVAGE VALUE = $0.00 SALVAGE VALUE AFTER 7 YEARS = $8,000.00
PLANNING HORIZON = 7PLANNING HORIZON = 7
MARR = 15.00% MARR = 15.00%
EUAC=6000(A|P 15%,7)+5000= EUAC=(36000-14000)(A|P 15%,7)+2500-8000(A|F 15%,7)=
EUAC=6000(0.24036)+5000= $6,442.16 EUAC=(36000-14000)(0.24036)+2500-8000(09036)= $7,065.04
RECOMMENDATION: KEEP EXISTING CRANE
EOY CF EXISTING EOY CF NEW
0-$6,000.00 0-$22,000.00
1-$5,000.00 1-$2,500.00
2-$5,000.00 2-$2,500.00
3-$5,000.00 3-$2,500.00
4-$5,000.00 4-$2,500.00
5-$5,000.00 5-$2,500.00
6-$5,000.00 6-$2,500.00
7-$5,000.00 7$5,500.00
PW= -$26,802.10 PW= -$29,393.55
EUAC= $6,442.16 EUAC= $7,065.05
RECOMMENDATION: KEEP EXISTING CRANE
EUAC DIFFERENCE = $622.88
bOUTSIDER’S VIEWPOINT APPROACH
KEEP EXISTING CRANE REPLACE WITH NEW CRANE
MARKET OR TRADE-IN VALUE = $14,000.00
0-$20,000.00 0-$36,000.00
1-$5,000.00 1-$2,500.00
2-$5,000.00 2-$2,500.00
3-$5,000.00 3-$2,500.00
4-$5,000.00 4-$2,500.00
5-$5,000.00 5-$2,500.00
PROBLEM 7.18
aINSIDER’S VIEWPOINT APPROACH
KEEP EXISTING CUPOLA FURNACE AND REPAIR WHEN REQUIRED REPLACE WITH REVERBERATORY FURNACE
MARKET OR TRADE-IN VALUE = $8,000.00
REPAIR COST = UNKNOWN PURCHASE PRICE = $32,000.00
FUEL COST = $35,000.00 REMOVAL & INSTALLATION COST = $2,400
LABOR COST = $40,000.00 FUEL COST = $29,000.00
PAYROLL TAXES = $4,000.00 LABOR COST = $30,000.00
TAXES AND INSURANCE = $200.00 PAYROLL TAXES = $3,000.00
OTHER $16,000.00 TAXES AND INSURANCE = $320.00
ANNUAL O&M COST = $95,200.00 OTHER $16,000.00
BI-ANNUAL RELINING COST = $0.00 ANNUAL O&M COST = $78,320.00
SALVAGE VALUE = $2,000.00 BI-ANNUAL RELINING COST = $4,000.00
PLANNING HORIZON = 7SALVAGE VALUE = $3,000.00
MARR = 15.00% PLANNING HORIZON = 7
MARR = 15.00%
EUAC=95200-2000(A|F 15%,7)= EUAC=(32000+2400-8000)(A|P 15%, 7)+78320+(4000
EUAC=95200-2000(0.09036)= $95,019.28 ((F|P 15%,5)+(F|P 15%,3)+(F|P 15%,1)-4000)(A|F 15%,7)=
EUAC=95200+(4000(2.01136+1.52088+1.15000)- EUAC=(32000+2400-8000)(0.24036)+78320+(4000(2.01136+
2000)(0.09036)= 1.52088+1.15000)-4000)(0.09036)= $86,086.77
EOY CF EXISTING EOY CF NEW
0$0.00 0-$26,400.00
MARKET OR TRADE-IN VALUE = $8,000.00
REPAIR COST = UNKNOWN PURCHASE PRICE = $32,000.00
FUEL COST = $35,000.00 REMOVAL & INSTALLATION COST = $2,400
LABOR COST = $40,000.00 FUEL COST = $29,000.00
PAYROLL TAXES = $4,000.00 LABOR COST = $30,000.00
TAXES AND INSURANCE = $200.00 PAYROLL TAXES = $3,000.00
EOY CF EXISTING EOY CF NEW
0-$8,000.00 0-$34,400.00
1-$95,200.00 1-$78,320.00
2-$95,200.00 2-$82,320.00
3-$95,200.00 3-$78,320.00
EUAC DIFFERENCE = -$8,932.49
PROBLEM 7.19
a INSIDER’S VIEWPOINT APPROACH
USE OWN LATHE, SUPPLEMENTED WITH A NEW LATHE TRADE IN EXISTING LATHE AND PURCHASE A LARGER LATHE SELL EXISTING LATHE AND CONTRACT TO HAVE THE WORK DONE
TRADE-IN VALUE NOW IF LATHE IS SOLD = $10,000.00 FIRST COST IF EXISTING UNIT IS TRADED IN = $24,000.00 ANNUAL CONTRACT COST = $12,000.00
ACTUAL MARKET VALUE NOW = $8,000.00 ADJ BASIS DUE TO INFLATED TRADE-IN = $22,000.00
SALVAGE VALUE IN 5 YEARS = $0.00 SALVAGE VALUE = $8,000.00
ANNUAL O&M COST OF EXISTING SYSTEM = $4,000.00 O&M OF NEW SYSTEM = $6,000.00
PURCHASE PRICE FOR NEW, SMALL LATHE = $12,000.00
ANNUAL O&M COST OF NEW SMALL LATHE = $6,000.00
SALVAGE VALUE OF NEW SMALL LATHE IN 5 YEARS = $8,000.00
PLANNING HORIZON = 5 PLANNING HORIZON = 5 PLANNING HORIZON = 5
MARR = 15.00% MARR = 15.00% MARR = 15.00%
EUAC=4000+12000(A|P 15% 5)+6000-8000(A|F 15%,5)= EUAC=(22000-8000)(A|P 15%,5)+6000-8000(A|F 15%,5)= EUAC=12000-8000(A|P15%,5)=
EUAC=4000+12000(0.29832)+6000-8000(0.14832)= $12,393.28 EUAC=(22000-8000)(0.29832)+6000-8000(0.14832)= $8,989.92 EUAC=12000-8000(0.29832)= $9,613.44
EOY CF EXISTING EOY CF NEW EOY CF LEASE
0 -$12,000.00 0 -$14,000.00 0 $8,000.00
1 -$10,000.00 1 -$6,000.00 1 -$12,000.00
2 -$10,000.00 2 -$6,000.00 2 -$12,000.00
3 -$10,000.00 3 -$6,000.00 3 -$12,000.00
4 -$10,000.00 4 -$6,000.00 4 -$12,000.00
5 -$2,000.00 5 $2,000.00 5 -$12,000.00
PW= -$41,544.14 PW= -$30,135.52 PW= -$32,225.86
EUAC= $12,393.26 EUAC= $8,989.89 EUAC= $9,613.48
RECOMMENDATION: TRADE IN EXISTING LATHE AND PURCHASE A NEW, LARGER LATHE
EUAC DIFFERENCE = -$3,403.37
b INSIDER’S VIEWPOINT APPROACH
USE OWN LATHE, SUPPLEMENTED WITH A NEW LATHE TRADE IN EXISTING LATHE AND PURCHASE A LARGER LATHE SELL EXISTING LATHE AND CONTRACT TO HAVE THE WORK DONE
TRADE-IN VALUE NOW IF LATHE IS SOLD = $10,000.00 FIRST COST IF EXISTING UNIT IS TRADED IN = $24,000.00 ANNUAL CONTRACT COST = $12,000.00
ACTUAL MARKET VALUE NOW = $8,000.00 ADJ BASIS DUE TO INFLATED TRADE-IN = $22,000.00
SALVAGE VALUE IN 5 YEARS = $0.00 SALVAGE VALUE = $8,000.00
ANNUAL O&M COST OF EXISTING SYSTEM = $4,000.00 O&M OF NEW SYSTEM = $6,000.00
PURCHASE PRICE FOR NEW, SMALL LATHE = $12,000.00
ANNUAL O&M COST OF NEW SMALL LATHE = $6,000.00
SALVAGE VALUE OF NEW SMALL LATHE IN 5 YEARS = $8,000.00
PLANNING HORIZON = 5 PLANNING HORIZON = 5 PLANNING HORIZON = 5
MARR = 15.00% MARR = 15.00% MARR = 15.00%
EUAC=4000+(8000+12000)(A|P 15% 5)+6000-8000(A|F 15%,5)= EUAC=22000(A|P 15%,5)+6000-8000(A|F 15%,5)= EUAC=12000-8000(A|P15%,5)=
EUAC=4000+(8000+12000)(0.29832)+6000-8000(0.14832)= $14,779.84 EUAC=22000(0.29832)+6000-8000(0.14832)= $8,989.92 EUAC=12000-8000(0.29832)= $9,613.44
EOY CF EXISTING EOY CF NEW EOY CF LEASE
0 -$20,000.00 0 -$22,000.00 0 $8,000.00
1 -$10,000.00 1 -$6,000.00 1 -$12,000.00
2 -$10,000.00 2 -$6,000.00 2 -$12,000.00
3 -$10,000.00 3 -$6,000.00 3 -$12,000.00
4 -$10,000.00 4 -$6,000.00 4 -$12,000.00
5 -$2,000.00 5 $2,000.00 5 -$12,000.00
PW= -$49,544.14 PW= -$38,135.52 PW= -$32,225.86
EUAC= $14,779.79 EUAC= $11,376.42 EUAC= $9,613.48
RECOMMENDATION: TRADE IN EXISTING LATHE AND PURCHASE A NEW, LARGER LATHE
EUAC DIFFERENCE = -$3,403.37
PROBLEM 7.21
KEEP EXISTING LIFT TRUCK TRADE IN EXISTING PUMP
TRADE-IN VALUE NOW IF NEW LIFT TRUCK IS PURCHASED
$2,500.00 FIRST COST IF EXISTING LIFT TRUCK IS TRADED IN = $6,500.00
ACTUAL MARKET VALUE NOW = $2,500.00 ADJ BASIS DUE TO INFLATED TRADE-IN = $6,500.00
SALVAGE VALUE IN 4 YEARS = $800.00 SALVAGE VALUE = $4,100.00
ANNUAL O&M COST OF LIFT TRUCK FOR YEAR 5 = $3,600.00 O&M OF NEW LIFT TRUCK = $1,200.00
GRADIENT INCREASE IN O&M COST = $400.00
PLANNING HORIZON = 4 PLANNING HORIZON = 4
MARR = 10.00% MARR = 10.00%
EUAC=3600+400(A|G 10%,4)-800(A|F 10%,4)= EUAC=(6500-2500)(A|P 10%,4)+1200-4100(A|F 10%,4)=
EUAC=3600+400(1.38117)-800(0.21547)= $3,980.09 EUAC=(6500-2500)(0.31547)+1200-4100(0.21547)= $1,578.45
EOY CF EXISTING EOY CF NEW
0 $0.00 0 -$4,000.00
1 -$3,600.00 1 -$1,200.00
2 -$4,000.00 2 -$1,200.00
3 -$4,400.00 3 -$1,200.00
4 -$4,000.00 4 $2,900.00
PW= -$12,616.35 PW= -$5,003.48
EUAC= $3,980.09 EUAC= $1,578.45 $2,401.64 = EUAC Δ
RECOMMENDATION: REPLACE THE DEFENDER LIFT TRUCK
PROBLEM 7.22
OVERHALL PRESENT EQUIPMENT REPLACE WITH NEW EQUIPMENT
TRADE-IN VALUE NOW IF NEW EQUIPMENT IS PURCHASED = $3,200.00 FIRST COST IF EXISTING EQUIPMENT IS REPLACED = $28,000.00
COST OF OVERHAULING PRESENT EQUIPMENT $8,500.00 ADJUSTED FIRST COST BASED ON TRADE-IN = $24,800.00
SALVAGE VALUE IN 5 YEARS = $0.00 SALVAGE VALUE = $12,000.00
ANNUAL O&M COST OF PRESENT EQUIPMENT = $7,500.00 O&M OF NEW EQUIPMENT = $3,000.00
PLANNING HORIZON = 5 PLANNING HORIZON = 5
MARR = 12% MARR = 12%
PW=-8500-7500(P|A 12%,5)= PW=-(28000-3200)-3000(P|A 12%,5)+12000(P|F 12%,5)=
PW=-8500-7500(3.60478)= -$35,535.85 PW=-(28000-3200)-3000(3.60478)+12000(0.56743)= –$28,805.18
PW =-8500+PV(12%,5,7500) = -$35,535.82 PW =-24800+PV(12%,5,3000,-12000) = -$28,805.21
EOY CF EXISTING EOY CF NEW
0 -$8,500.00 0 -$24,800.00
1 -$7,500.00 1 -$3,000.00
2 -$7,500.00 2 -$3,000.00
3 -$7,500.00 3 -$3,000.00
4 -$7,500.00 4 -$3,000.00
5 -$7,500.00 5 $9,000.00
PW= -$35,535.82 PW= -$28,805.21 -$6,730.62
= PW Δ
RECOMMENDATION: REPLACE THE PRESENT EQUIPMENT
PROBLEM 7.23
KEEP EXISTING COMPUTER AND PURCHASE NEW SMALL COMPUTER TRADE IN EXISTING COMPUTER
TRADE-IN VALUE NOW IF NEW COMPUTER PURCHASED = $100,000.00 FIRST COST IF EXISTING COPMPUTER IS TRADED IN = $300,000.00
FIRST COST OF NEW, SMALLER COMPUTER = $150,000.00 OUT OF POCKET CASH FLOW IF COMPUTER IS TRADED-IN = $200,000.00
COMBINED SALVAGE VALUE IN 4 YEARS = $40,000.00 SALVAGE VALUE = $50,000.00
ANNUAL O&M COST OF BOTH COMPUTERS = $105,000.00 O&M OF NEW COMPUTER = $80,000.00
PLANNING HORIZON = 4 PLANNING HORIZON = 4
MARR = 15.00% MARR = 15.00%
AW=-150,000(A|P 15%,4)-105,000+40,000(A|F 15%,4)= AW=-(300,000-100,000)(A|P 15%,4)-80,000+50,000(A|F 15%,4)=
AW=-150,000(0.35027)-105,000+40,000(0.20027)= –$149,529.70 AW=-(300,000-100,000)(0.35027)-80,000+50,000(0.20027)= -$140,040.50
EOY CF EXISTING EOY CF NEW
0 -$150,000.00 0 -$200,000.00
1 -$105,000.00 1 -$80,000.00
2 -$105,000.00 2 -$80,000.00
3 -$105,000.00 3 -$80,000.00
4 -$65,000.00 4 -$30,000.00
PW= -$426,902.60 PW= -$399,810.61
AW= -$149,529.19 AW= -$140,039.80 -$9,489.39
= AW Δ
RECOMMENDATION: TRADE IN EXISTING COMPUTER ON NEW COMPUTER
PROBLEM 7.24
KEEP EXISTING MIXER AND PURCHASE SMALL NEW MIXER TRADE IN EXISTING MIXER
TRADE-IN VALUE NOW IF NEW MIXER PURCHASED = $10,000.00 FIRST COST IF EXISTING MIXER IS TRADED IN = $25,000.00
FIRST COST OF NEW, SMALLER MIXER = $25,000.00 OUT OF POCKET CASH FLOW IF MIXER IS TRADED-IN = $15,000.00
COMBINED SALVAGE VALUE IN 4 YEARS = $6,500.00 SALVAGE VALUE = $4,000.00
ANNUAL O&M COST OF BOTH MIXERS = $11,000.00 O&M OF NEW MIXER = $8,000.00
PLANNING HORIZON = 10 PLANNING HORIZON = 10
MARR = 15.00% MARR = 15.00%
EUAC=25,000(A|P 15%,10)+11,000-6,500(A|F 15%,10)= EUAC=(25,000-10,000)(A|P 15%,10)+8,000-4,000(A|F 15%,10)=
EUAC=25,000(0.19925)+11,000-6,500(04925)= $15,661.13 EUAC=(25,000-10,000)(0.19925)+8,000-4,000(0.04925)= $10,791.75
EOY CF EXISTING EOY CF NEW
0 -$25,000.00 0 -$15,000.00
1 -$11,000.00 1 -$8,000.00
2 -$11,000.00 2 -$8,000.00
3 -$11,000.00 3 -$8,000.00
4 -$11,000.00 4 -$8,000.00
5 -$11,000.00 5 -$8,000.00
6 -$11,000.00 6 -$8,000.00
7 -$11,000.00 7 -$8,000.00
8 -$11,000.00 8 -$8,000.00
9 -$11,000.00 9 -$8,000.00
10 -$4,500.00 10 -$4,000.00
PW= -$78,599.75 PW= -$54,161.41
EUAC= $15,661.16 EUAC= $10,791.77 $4,869.39
= EUAC Δ
RECOMMENDATION: TRADE IN EXISTING MIXER ON NEW MIXER
PROBLEM 7.25
KEEP EXISTING LATHE AND PURCHASE ATTACHMENT TRADE IN EXISTING LATHE
TRADE-IN VALUE NOW IF NEW LATHE PURCHASED = $8,000.00 FIRST COST IF EXISTING LATHE IS TRADED IN = $25,000.00
FIRST COST OF ATTACHMENT = $3,500.00 OUT OF POCKET CASH FLOW IF MIXER IS TRADED-IN = $17,000.00
SALVAGE VALUE IN 5 YEARS = $2,000.00 SALVAGE VALUE = $13,000.00
ANNUAL O&M COST = $7,000.00 O&M OF NEW MIXER = $7,000.00
PLANNING HORIZON = 5 PLANNING HORIZON = 5
MARR = 15.00% MARR = 15.00%
AW=-3500(A|P 15%,5)-7000+2000(A|F 15%,5)= AW=-(25,000-8,000)(A|P 15%,5)-7,000+13,000(A|F 15%,5)=
AW=-3500(0.29832)-7000+2000(0.14832)= -$7,747.48 AW=-(25,000-8,000)(0.29832)-7,000+13,000(0.14832)= -$10,143.28
EOY CF EXISTING EOY CF NEW
0 -$3,500.00 0 -$17,000.00
1 -$7,000.00 1 -$7,000.00
2 -$7,000.00 2 -$7,000.00
3 -$7,000.00 3 -$7,000.00
4 -$7,000.00 4 -$7,000.00
5 -$5,000.00 5 $6,000.00
PW= -$25,970.73 PW= -$34,001.79
AW= -$7,747.47 AW= -$10,143.26 $2,395.79
= AW Δ
RECOMMENDATION: KEEP EXISTING LATHE AND PURCHASE ATTACHMENT
PROBLEM 7.26
KEEP EXISTING NC MACHINE AND PURCHASE NEW MACHINE X TRADE IN EXISTING NC MACHINE AND PURCHASE MACHINE Y
TRADE-IN VALUE NOW IF NEW NC MACHINE PURCHASED = $70,000.00 FIRST COST FOR MACHINE Y = $400,000.00
FIRST COST OF MACHINE X = $200,000.00
OUT OF POCKET CASH FLOW IF OLD MACHINE IS TRADED-IN =
$330,000.00
COMBINED SALVAGE VALUE IN 5 YEARS = $45,000.00 SALVAGE VALUE = $140,000.00
ANNUAL O&M COST OF BOTH COMPUTERS = $95,000.00 O&M OF NEW COMPUTER = $70,000.00
PLANNING HORIZON = 10 PLANNING HORIZON = 10
MARR = 15% MARR = 15%
PW=-200,000-95,000(P|A 15%,10)+45,000(P|F 15%,10)= PW=-(400,000-70,000)-80,000(P|A 15%,10)+50,000(P|F 15%,4)=
PW=-200,000-95,000(5.01877)+45,000(0.24718)= -$665,660.05 PW=-(400,000-70,000)-80,000(5.01877)+50,000(0.24718)= -$646,708.70
EOY CF EXISTING EOY CF NEW
0 -$200,000.00 0 -$330,000.00
1 -$95,000.00 1 -$70,000.00
2 -$95,000.00 2 -$70,000.00
3 -$95,000.00 3 -$70,000.00
4 -$95,000.00 4 -$70,000.00
5 -$95,000.00 5 -$70,000.00
6 -$95,000.00 6 -$70,000.00
7 -$95,000.00 7 -$70,000.00
8 -$95,000.00 8 -$70,000.00
9 -$95,000.00 9 -$70,000.00
10 -$50,000.00 10 $70,000.00
PW= -$665,659.71 PW= -$646,707.94 -$18,951.76
= PW Δ
RECOMMENDATION: TRADE IN EXISTING NC MACHINE AND PURCHASE MACHINE Y
PROBLEM 7.27
INSIDER’S VIEWPOINT (CASH FLOW) APPROACH
KEEP MACHINE AND DO THE WORK SELL MACHINE AND SUBCONTRACT THE WORK
TRADE-IN VALUE NOW IF MACHINE IS REPLACED = $70,000.00 PURCHASE PRICE OF CHALLENGER = $0.00
ACTUAL MARKET VALUE NOW = $70,000.00 ADJ BASIS DUE TO INFLATED TRADE-IN = $0.00
SALVAGE VALUE IN 5 YEARS = $43,750.00 SALVAGE VALUE = $0.00
ANNUAL O&M COST OF DEFENDER = $65,000.00 SUBCONTRACTOR ANNUAL CHARGE TO DO THE WORK $85,000.00
ANNUAL REVENUE PRODUCED BY DEFENDER = $105,000.00 ANNUAL REVENUE PRODUCED BY CHALLENGER = $105,000.00
PLANNING HORIZON = 5 PLANNING HORIZON = 5
MARR = 15% MARR = 15%
AW=105,000-65,000+43,750(A|F 15%,5)= AW=105,000-85,000+70,000(A|P 15%,5)=
AW=105,000-65,000+43,750(0.14832)= $46,489.00 AW=105,000-85,000+70,000(0.29832)= $40,882.40
AW=-PMT(C12,C11,,C8)+C10-C9= $46,488.81 AW=PMT(F12,F11,10000,-7500)+F21= $40,882.09
EOY CF EXISTING EOY CF NEW
0 $0.00 0 $70,000.00
1 $40,000.00 1 $20,000.00
2 $40,000.00 2 $20,000.00
3 $40,000.00 3 $20,000.00
4 $40,000.00 4 $20,000.00
5 $83,750.00 5 $20,000.00
PW= $155,837.69 PW= $137,043.10
AW= $46,488.81 AW= $40,882.09
AW DIFFERENCE = -$5,606.72
RECOMMENDATION: KEEP THE MACHINE AND DO THE WORK
PROBLEM 7.28
OVERHALL TRACTOR AND SCRAPER REPLACE WITH NEW EQUIPMENT
TRADE-IN VALUE NOW IF NEW EQUIPMENT IS PURCHASED = $60,000.00 FIRST COST IF EXISTING EQUIPMENT IS REPLACED = $150,000.00
COST OF OVERHAULING PRESENT EQUIPMENT $20,000.00 ADJUSTED FIRST COST BASED ON TRADE-IN = $90,000.00
SALVAGE VALUE IN 7 YEARS = $0.00 SALVAGE VALUE = $35,000.00
ANNUAL O&M COST OF OVERHAULED EQUIPMENT = $25,000.00 O&M OF NEW EQUIPMENT = $12,000.00
PLANNING HORIZON = 7 PLANNING HORIZON = 7
MARR = 15% MARR = 15%
AW=-20,000(A|P 15%,7)-18,000= AW=-(150,000-60,000)(A|P 15%,7)-12,000+35,000(A|F 15%,7)=
AW=-20,000(0.24036)-18,000= -$29,807.20 AW=-90,000(0.24036)-12,000+35,000(0.09036)= –$30,469.80
AW =-18000+PMT(15%,7,20000) = -$22,807.21 AW =-12000+PMT(15%,7,90000,-35000) = -$30,469.82
EOY CF EXISTING EOY CF NEW
0 -$20,000.00 0 -$90,000.00
1 -$25,000.00 1 -$12,000.00
2 -$25,000.00 2 -$12,000.00
3 -$25,000.00 3 -$12,000.00
4 -$25,000.00 4 -$12,000.00
5 -$25,000.00 5 -$12,000.00
6 -$25,000.00 6 -$12,000.00
7 -$25,000.00 7 $23,000.00
PW= -$124,010.49 PW= –$126,767.24 $2,756.75
= PW Δ
AW= -$29,807.21 AW= -$30,469.82 $662.61
= AW Δ
RECOMMENDATION: OVERHAUL THE TRACTOR AND SCRAPER
PROBLEM 7.29
FIRST COST = $28,000.00
MILES DRIVEN = 15,000 MILES
O&M FIRST YEAR = $0.505 PER MILE
O&M EACH ADDN YR = 10.00%
SALVAGE % DECLINE = 20.00%
MARR = 9.00%
LIFE
StCR O&M EUAO&MC EUAC
0
1 $22,400.00 $8,120.00 $7,575.00 $7,575.00 $15,695.00
2 $17,920.00 $7,342.97 $8,332.50 $7,937.44 $15,280.41
3 $14,336.00 $6,688.27 $9,165.75 $8,312.14 $15,000.41
4 $11,468.80 $6,134.86 $10,082.33 $8,699.23 $14,834.08
5 $9,175.04 $5,665.51 $11,090.56 $9,098.80 $14,764.31 OPTIMUM
6 $7,340.03 $5,266.12 $12,199.61 $9,510.96 $14,777.08
7 $5,872.03 $4,925.10 $13,419.57 $9,935.79 $14,860.89
8 $4,697.62 $4,632.93 $14,761.53 $10,373.36 $15,006.29
9 $3,758.10 $4,381.75 $16,237.69 $10,823.73 $15,205.48