The Tiger Construction Company purchased its current bulldozer (a Caterpillar D8H) and placed it in service six years ago. Since the purchase of the Caterpillar, new technology has produced changes in machines resulting in an increase in productivity of approximately 20%. The Caterpillar worked in a system with a fixed (required) production level to maintain overall system productivity. As the Caterpillar aged and logged more downtime, more hours had to be scheduled to maintain the required production. Tiger is considering purchasing a new bulldozer (a Komatsu K80A) to replace the Caterpillar. Table ST 14.4 contains data which has been collected by Tiger's civil engineer.
(a) A civil engineer notices that both machines have different working hours and hourly production capacities. To compare the different units of capacity, the engineer needs to devise a combined index that reflects each machine's productivity as well as actual operating hours. Develop such a combined productivity index for each period.
(b) Adjust the operating and maintenance costs by the index you have come up with.
(c) Compare the two alternatives. Should the defender be replaced now?
(d) If the following price indices were estimated for the next five project years, should the defender be replaced now?
TABLE ST 14.4
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Defender (Caterpillar DSH)Challenger Komatsu K80A) Not known Not known S100,000 Useful life Purchase price Salvage value it kept for 0 yeur I year 2 years 3 yeurs 4 yeats 5 years $400,000 300,000 240,000 190,000 150,000 115,000 16 575,000 60.000 50,000 10,000 Fuel use (gallonhour) Maintcnance costs 11.30 546.800 46.800 46,800 46,800 46,800 $35.000 38,400 43,700 48.300 58,000 Operating hours (hoursycar; 1 800 L8OO 1,700 1,700 1600 10O 2400 2300 2.100 2,000 .20 Productivity index Other relevant infomation Fucl cost (S/gallon Operator's wages (S/hour) Market interest rate (MARR) Marginal tax rate Depreciation methods S1.20 $23.40 15% Fully Depreciated MACRS (5 year Forecasted Price Index General Year Inflation FuelWage Maintenance 100 108 116 126 136 147 100 100 110 120 130 140 150 115 125 130 135 140 100 108 116 124 126 128