The Clap Chemical Company needs a large insulated stainless steel tank for the expansion of its plant. Clap has located such a tank at a recently closed brewery. The brewery has offered to sell the tank for $15,000 delivered to the chemical plant. The price is so low that Clap believes it can sell the tank at any future time and recover its $15,000 investment. The outside of the tank is covered with heavy insulation that requires considerable maintenance with estimated costs as follows:
Insulation
Year Maintenance Cost
0...........................$2000
1...........................500
2...........................1000
3...........................1500
4...........................2000
5...........................2500
(a) Based on a 15% before-tax MARR, what life of the insulated tank has the lowest EUAC?
(b) Is it likely that the insulated tank will be replaced by another tank at the end of the period with the lowest EUAC? Explain.