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One Part A A brass mining pump and a stainless-steel mining pump are being compared by Prata Mines for an application in which their operating
One Part A A brass mining pump and a stainless-steel mining pump are being compared by Prata Mines for an application in which their operating costs will be the same. The company uses an interest rate of 8 percent. Compare each alternative's PV with a 12-year horizon and with an infinite horizon. The brass pump lasts three years and costs $12,000. The stainless-steel pump lasts four years and costs $15,000. Neither will have a salvage value . Part B For the brass and stainless-steel pumps of Part A, use periods shorter than 12 years for the comparison. In particular, calculate comparable PVs for 3, 4, and 5 years. For these calculations, the residual value for the brass pump is assumed to be $6K after one year of use, $2K after two years, and $0 after three years. Similarly, the residual values for the stainless-steel pump are assumed to be $9K, $4.5K, $1.5K, and $0 after 1, 2, 3, and 4 years, respectively Part C In Part A, assume the PVs for a brass and a stainless-steel pump were calculated to be - $35.09K and - $34.13K, respectively. Evaluate these pumps using EAC and the same 8 percent interest rate (clue: calculate EAC difference) Question One Part A [8 marks] A brass mining pump and a stainless-steel mining pump are being compared by Prata Mines for an application in which their operating costs will be the same. The company uses an interest rate of 8 percent. Compare each alternative's PV with a 12-year horizon and with an infinite horizon. The brass pump lasts three years and costs $12,000. The stainless-steel pump lasts four years and costs $15,000. Neither will have a salvage value. Part B [6 marks] For the brass and stainless-steel pumps of Part A, use periods shorter than 12 years for the comparison. In particular, calculate comparable PVs for 3, 4, and 5 years. For these calculations, the residual value for the brass pump is assumed to be $6K after one year of use, $2K after two years, and $0 after three years. Similarly, the residual values for the stainless-steel pump are assumed to be $9K, $4.5K, $1.5K, and $0 after 1, 2, 3, and 4 years, respectively. Part C [6 marks] In Part A, assume the PVs for a brass and a stainless-steel pump were calculated to be - $35.09K and - $34.13K, respectively. Evaluate these pumps using EAC and the same 8 percent interest rate (clue: calculate EAC difference)
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