6. 9.11 (Spreadsheet exercise) A construction company bought a 180,000 metric ton earth sifter at a cost of $65,000. The company expects to keep the equipment a maximum of 7 years. The operating cost is expected to follow the series described by 40,000 + 10,000k, where k is the number of years since it was purchased (k = 1, … , 7). The salvage value is estimated to be $30,000 for years 1 and 2 and $20,000 for years 3 through 7. At i = 10% per year, determine the ESL and equivalent AW of costs for the sifter.

1. First, use a spreadsheet accompanied by a plot of AW of costs versus all 7 years. 2. Look at the factors that would be used to determine the AW values. Explain, from a factor value viewpoint, why the AW value decreases significantly between years 1 and 2. 3. Now for a sensitivity question using your spreadsheet. What happens to the ESL and AW values if an enhanced version of the sifter is purchased for $90,000 and the life, operating cost, and salvage estimates remain the same? Are the ESL and AW values sensitive to this first-cost increase?