The owner of a 10-year old asphalt plant is considering two alternatives: To continue with the...
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The owner of a 10-year old asphalt plant is considering two alternatives: To continue with the old equipment for possibly 5 years more, at which time there will be no residual value. Its present value is $4,000 and its annual output is 10,000 tons. Annual repairs cost $1,000 and operating cost is $2.00 per ton of output. Option A: To sell the old equipment based on its present value now and purchase a new equipment at a cost of $50,000. It has a capacity of 12,000 tons per year and has an estimated life of 20 years and will be scrapped at the end of its life. Operating costs will be about $1.60 per ton of output and annual repairs about $500. Option B: Required: If MARR is 12%, which of these alternatives should be selected? The owner of a 10-year old asphalt plant is considering two alternatives: To continue with the old equipment for possibly 5 years more, at which time there will be no residual value. Its present value is $4,000 and its annual output is 10,000 tons. Annual repairs cost $1,000 and operating cost is $2.00 per ton of output. Option A: To sell the old equipment based on its present value now and purchase a new equipment at a cost of $50,000. It has a capacity of 12,000 tons per year and has an estimated life of 20 years and will be scrapped at the end of its life. Operating costs will be about $1.60 per ton of output and annual repairs about $500. Option B: Required: If MARR is 12%, which of these alternatives should be selected?
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NPV OF OPTION A YEAR PARTICULARS CASH FLOW DF 12 PV 0 Sale valu... View the full answer
Related Book For
Engineering Economy
ISBN: 978-0132554909
15th edition
Authors: William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Posted Date:
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