Question
For the scenario described below, determine the minimum number of hours per year that the more expensive pump must be used to justify its purchase.
For the scenario described below, determine the minimum number of hours per year that the more expensive pump must be used to justify its purchase. Clearly show the method you have used. State and comment on any assumptions you have made and the reasonableness of your method and answer.
Two pumps can be used for pumping corrosive liquid. A pump with a brass impeller costs $1200 and is expected to last 3 years. A pump with a stainless steel impeller costs $2850 will last 5 years. A rebuild costing $450 will be required after every 2000 operating hours for the brass impeller pump, while an overhaul costing $1050 will be required for the stainless steel pump after every 8000 hours. It is estimated that the operating cost of each pump is the same at $1.50 per hour. The company applies a discount factor of 10% to its projects.
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