An engineer is undertaking a replacement study of a lean solution pumping system of an Acid...

 

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An engineer is undertaking a replacement study of a lean solution pumping system of an Acid Gas Removal Unit (AGRU). The existing system, acquired 5 years ago for RM 105,000, can be sold today for RM25,000. Operating expenses in the past have been RM20,000 per year, but the costs are estimated to increase in the future by RM5,000 per year starting year 2. There is no market value at the end of year 3. An alternative to keeping the existing system in service is to purchase a new system which has the following estimated costs: Investment cost = RM85,000 Market value (at the end of year 3) = RM50,000 Annual Operating/Maintenance Cost: First year = RM12,000 Second year = RM15,000 Third year = RM18,000 MARR = (10 + x)% Analysis period = 3 years (Note: Use the last digit of your student ID for the value of x.) a. Illustrate the two different approaches to compare the cost of defender and challenger using cash flow diagrams. b. Evaluate the present worth (PW) of the challenger. с. Propose whether or not the replacement shall be done. Justify your answer. An engineer is undertaking a replacement study of a lean solution pumping system of an Acid Gas Removal Unit (AGRU). The existing system, acquired 5 years ago for RM 105,000, can be sold today for RM25,000. Operating expenses in the past have been RM20,000 per year, but the costs are estimated to increase in the future by RM5,000 per year starting year 2. There is no market value at the end of year 3. An alternative to keeping the existing system in service is to purchase a new system which has the following estimated costs: Investment cost = RM85,000 Market value (at the end of year 3) = RM50,000 Annual Operating/Maintenance Cost: First year = RM12,000 Second year = RM15,000 Third year = RM18,000 MARR = (10 + x)% Analysis period = 3 years (Note: Use the last digit of your student ID for the value of x.) a. Illustrate the two different approaches to compare the cost of defender and challenger using cash flow diagrams. b. Evaluate the present worth (PW) of the challenger. с. Propose whether or not the replacement shall be done. Justify your answer.