Refer to Problem 11-11. The best estimate for reduction of labor hours for the new system is 20% (compared with the used system). Investigate how sensitive the decision is to
In Problem 11-11
A large city in the mid-West needs to acquire a street-cleaning machine to keep its roads looking nice year round. A used cleaning vehicle will cost $75,000 and have a $20,000 market (salvage) value at the end of its five-year life. A new system with advanced features will cost $150,000 and have a $50,000 market value at the end of its five-year life. The new system is expected to reduce labor hours compared with the used system. Current street-cleaning activity requires the used system to operate 8 hours per day for 20 days per month. Labor costs $40 per hour (including fringe benefits), and MARR is 12% per year compounded monthly.
(a) Changes in the MARR,
(b) Changes in the market value of the new system, and
(c) The productivity improvement of the new system. Graph your results.