Your company intends to operate its highly polluting coal-fired power plant located in Alberta for 4...

  

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Your company intends to operate its highly polluting coal-fired power plant located in Alberta for 4 more years before demolishing it (i.e., the Project life is 4 years). The steam turbines of the plant are defective and they have to be either overhauled (repaired) at a cost of $Y/turbine or replaced. The life of a turbine after an overhaul is 2 years (and after two years it has to be overhauled again in order to keep it in operation). The cost of a new turbine is $X and its expected life is 5 years. MARR (the minimum attractive rate of return) is 10 %. Salvage values are zero. The O/M (operating and maintenance) costs of the new and overhauled turbines are given below: End of year Overhauled turbine, $/year New turbine, $/year 1 420,000 140,000 2 420,000 140,000 3 140,000 4 140,000 Determine: a) the present value of the cost of keeping one existing turbine in operation (for four years) using overhauls if Y = 820,000 b) the equivalent uniform annual cost of a new turbine (if it is used for four years) and X = 2,300,000 c) the yearly saving if a turbine is replaced instead of keeping an existing turbine in service by overhauls. X= 2,300,000 and Y= 820,000 d) the internal rate of return of the cash flow of the savings if a turbine is replaced (instead of keeping an existing turbine in service). X = 2,300,000 and Y = 820,000 e) the range of values of X that would economically justify replacement of a turbine if Y = 500,000 (3 marks) (5 marks) (5 marks) (5 marks) (7 marks) Your company intends to operate its highly polluting coal-fired power plant located in Alberta for 4 more years before demolishing it (i.e., the Project life is 4 years). The steam turbines of the plant are defective and they have to be either overhauled (repaired) at a cost of $Y/turbine or replaced. The life of a turbine after an overhaul is 2 years (and after two years it has to be overhauled again in order to keep it in operation). The cost of a new turbine is $X and its expected life is 5 years. MARR (the minimum attractive rate of return) is 10 %. Salvage values are zero. The O/M (operating and maintenance) costs of the new and overhauled turbines are given below: End of year Overhauled turbine, $/year New turbine, $/year 1 420,000 140,000 2 420,000 140,000 3 140,000 4 140,000 Determine: a) the present value of the cost of keeping one existing turbine in operation (for four years) using overhauls if Y = 820,000 b) the equivalent uniform annual cost of a new turbine (if it is used for four years) and X = 2,300,000 c) the yearly saving if a turbine is replaced instead of keeping an existing turbine in service by overhauls. X= 2,300,000 and Y= 820,000 d) the internal rate of return of the cash flow of the savings if a turbine is replaced (instead of keeping an existing turbine in service). X = 2,300,000 and Y = 820,000 e) the range of values of X that would economically justify replacement of a turbine if Y = 500,000 (3 marks) (5 marks) (5 marks) (5 marks) (7 marks)

Answer rating: 100% (QA)

ANSWER Explanation Ans a b Total Project Life MARR 4 years 10 ... View the full answer