Question
A new gear grinding machine for composite materials has a first cost of P = $100,000 and can be used for a maximum of 6
A new gear grinding machine for composite materials has a first cost of P = $100,000 and can be used for a maximum of 6 years. Its salvage value is estimated by the relation S = P(0.85)/, where n is the number of years after purchase. The operating cost will be $75,000 the first year and will increase by $10,000 per year thereafter. Use i = 18% per year. (a) Determine the economic service life and corresponding A W of this challenger. (b) It was hoped that the machine is economically justified for retention for all 6 years, but that is not the case since the ESL in part (a) is considerably less than 6 years. Determine the reduction in first cost that would have to be negotiated to make the equivalent annual cost for a fu ll 6 years of ownership numerically equal to the A W esti mate determined for the calculated ESL. Assume all other estimates remain the same, and neglect the fact that this lower P value will still not make a newly calculated ESL=6 years.
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