One of the four ovens at a bakery is being considered for replacement. A new oven costs $80,000, but this price includes a complete guarantee covering all maintenance costs for the first 2 years and most maintenance costs for year 3. The salvage value and maintenance costs for the existing and proposed new ovens, respectively are given in the table below. Both ovens are similar in productivity and energy costs. Because of heavy usage, the existing oven has 2 years of life remaining and the new oven has an expected useful life of 3 years. The bakery asks you to perform an economic analysis using a MARR of 8% per year. What should the company do? Existing Oven New Oven Maintenance Maintenance Time Salvage Value Salvage Value Costs Costs 0 $20,000 1 $17,000 $9,500 $75,000 $0 2 $14,000 $9,600 $70,000 $0 3 $66,000 $5,000 Two routes are under consideration for a new interstate highway: a long intervalley route and a short transmountain route. The table below summarizes characteristics of both routes. Regardless of which route is selected, the volume of traffic is expected to be 400,000 vehicles per year. If the vehicle operating costs are assumed to be $0.30 per kilometer, which of the two should be implemented? Use a B/C analysis and an interest rate of 8% per year. Note: no credit will be awarded if the decision is not based on a B/C analysis. Intervalley Transmountain Initial Cost, $ 25,000,000 45,000,000 Maintenance cost, $/year 150,000 35,000 Length, kilometers 25 10 Life, years 100 100 One of the four ovens at a bakery is being considered for replacement. A new oven costs $80,000, but this price includes a complete guarantee covering all maintenance costs for the first 2 years and most maintenance costs for year 3. The salvage value and maintenance costs for the existing and proposed new ovens, respectively are given in the table below. Both ovens are similar in productivity and energy costs. Because of heavy usage, the existing oven has 2 years of life remaining and the new oven has an expected useful life of 3 years. The bakery asks you to perform an economic analysis using a MARR of 8% per year. What should the company do? Existing Oven New Oven Maintenance Maintenance Time Salvage Value Salvage Value Costs Costs 0 $20,000 1 $17,000 $9,500 $75,000 $0 2 $14,000 $9,600 $70,000 $0 3 $66,000 $5,000 Two routes are under consideration for a new interstate highway: a long intervalley route and a short transmountain route. The table below summarizes characteristics of both routes. Regardless of which route is selected, the volume of traffic is expected to be 400,000 vehicles per year. If the vehicle operating costs are assumed to be $0.30 per kilometer, which of the two should be implemented? Use a B/C analysis and an interest rate of 8% per year. Note: no credit will be awarded if the decision is not based on a B/C analysis. Intervalley Transmountain Initial Cost, $ 25,000,000 45,000,000 Maintenance cost, $/year 150,000 35,000 Length, kilometers 25 10 Life, years 100 100
