Five years ago, a conveyor system was installed in a manufacturing plant at a cost

of $$35,000.$ The company spent $$8,000$ last month repairing the system to keep it operational

and your supervisor wants you to access when the system should be replaced. I was estimated

CMGT $547$ Managerial Engineering Economics

Final Examination

that the system, which still in operating condition, would have a useful life of eight years, with a

salvage value of $$3,000.$ If the firm continues to operate the system, the system$$s estimated

market values and operating costs for the next three years are as follows:

End of Year Market Value Repair O&M Cost

$0$ $$11,500$ $$8,000$

$1$ $$5,200$ $$4,500$

$2$ $$3,500$ $$5,300$

$3$ $$1,200$ $$8,000$

A new system can be installed for $$43,500.$ This system would have an estimated economic life

of $10$ years, with a salvage value of $$3,500.$ The operating costs for the new system are expected

to be $$1,500$ per year throughout its service life. The firm$$s MARR is $1$A$\%.$ Ignore any income

tax effects for this problem.

a$.$ What is the remaining economic service life of the old machine?

b$.$ When should the defender be replaced?

c$.$ How would the analysis be impacted if the repair cost was half?