Big-J Construction Company, Inc. (Big-J CC) is conducting routine periodic review of existing field equipment. The owner of Big-J CC has asked for a replacement evaluation of a paving machine now in use. A newer, more efficient machine is being considered. The old machine was purchased 3 years ago for $200,000, and yearly operating and maintenance costs are as follows.

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Big-J Construction Company, Inc. (Big-J CC) is conducting routine periodic review of existing field equipment. The owner of Big-J CC has asked for a replacement evaluation of a paving machine now in use. A newer, more efficient machine is being considered. The old machine was purchased 3 years ago for $200,000, and yearly operating and maintenance costs are as follows. Big-J CC Uses a MARR of 20%; the current market value of the paver is $120,000.

Estimates of Operating &Maintenance Cost and Market Value for Next 7 Years (old paver)

                                   Operating              Maintenance                        Market Value

Year,                            Cost in                         Cost in                                     If Sold

N                                  Year n                         Year n                                     in Yearn

1                                  $15,000                       $ 9,000                                  $85,000

2                                  15,000                         10,000                                     65,000

3                                  17,000                         12,000                                     50,000

4                                  20,000                         18,000                                     40,000

5                                  25,000                         20,000                                     35,000

6                                  30,000                         25,000                                     30,000

7                                  35,000                         30,000                                     25,000

Data for the new paving machine have been analyzed. Its most economic life is at 8 years with a minimum EUAC of $ 62,000. Make a recommendation to Big-J CC regarding the paving machine in question.

MARR
Minimum Acceptable Rate of Return (MARR), or hurdle rate is the minimum rate of return on a project a manager or company is willing to accept before starting a project, given its risk and the opportunity cost of forgoing other...
Related Book For answer-question

Engineering Economics

9th Edition

Authors: Ted G. Feller

ISBN: 9780195168075