The AW values for retaining a presently owned machine for additional years are shown in the table.

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The AW values for retaining a presently owned machine for additional years are shown in the table. Note that the values represent the AW amount for each of the n years that the asset is kept, that is, if it is kept 5 more years, the annual worth is $95,000 for each of the 5 years. Assume that future costs remain as estimated for the replacement study and that used machines like the one presently owned will always be available.

(a) What is the ESL and associated AW of the defender at a MARR of 12% per year?

(b) A challenger with an ESL of 7 years and an AWC = $ −89,500 per year has been identified. Which AW will be less for the respective ESL periods?

Retention Period, Years                    AW Value, $ per Year
1......................................................................................−92,000
2......................................................................................−88,000
3......................................................................................−85,000
4......................................................................................−89,000
5......................................................................................−95,000

MARR
Minimum Acceptable Rate of Return (MARR), or hurdle rate is the minimum rate of return on a project a manager or company is willing to accept before starting a project, given its risk and the opportunity cost of forgoing other...
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Engineering Economy

ISBN: 978-0073523439

8th edition

Authors: Leland T. Blank, Anthony Tarquin

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