Allen Construction purchased a crane 6 years ago for ($130,000.) They need a crane of this capacity
Question:
Allen Construction purchased a crane 6 years ago for \($130,000.\) They need a crane of this capacity for the next 5 years. Normal operation costs \($35,000\) per year. The current crane will have no salvage value at the end of 5 more years. Allen can trade in the current crane for its market value of \($40,000\) toward the purchase of a new one, which costs \($150,000.\) The new crane will cost only \($8,000\) per year under normal operating conditions and will have a salvage value of \($55,000\) after 5 years. If MARR is 20 percent, determine which option is preferred.
a. Use the cash flow approach (insider’s viewpoint approach).
b. Use the opportunity cost approach (outsider’s viewpoint approach).
Step by Step Answer:
Principles Of Engineering Economic Analysis
ISBN: 9781118163832
6th Edition
Authors: John A. White, Kenneth E. Case, David B. Pratt