Question 2 (25 marks) In a PCB factory, a plating line was bought 6 years ago for ($300,000+10*4). Since it caught fire last night, its life span is much shortened and remains for only 1 more year from now. There would be no salvage value. (Round off your final answers to 2 decimal places) (a) The engineer plans to buy a new one to replace it at its end date. He wants to estimate the cost of a similar plating line at that time. Suppose the cost index has increased at an average rate of 8% per year and will continue to increase at this rate. How much is the estimated cost of the new plating line? (4 marks) (b) Moreover, the engineer also wants to lower the financing burden. He suggests reserving a lump sum as the replacement fund on a guaranteed investment fund, which has a rate of return of 5% per annum. How much should be reserved today to achieve this goal? (4 marks) Since the fire suddenly shortened the life span of the plating line, the engineer wants to migrate the risk by subscribing a special Refitting Service Plan so that the life span of the new plating line can be extended to 10 years. The first annual refitting service charge ($15,000) will be paid at the Day 1 of purchasing the new equipment. As the equipment ages, this charge is expected to be increasing at ($1,500+4) every year. The MARR is 10% per annum. [NOTE: Year 0 is today; Year 1 is Day 1 of purchasing the new equipment] (c) List all the values of the given factors required for the calculation of gradient annuity at Year 1. (4 marks) (d) Draw a cashflow diagram to illustrate your payment schedule. + (5 marks) (e) How much would be the total Refitting Service charges discounted back to the Day 1 of purchasing the new equipment? (8 marks) Question 2 (25 marks) In a PCB factory, a plating line was bought 6 years ago for ($300,000+10*4). Since it caught fire last night, its life span is much shortened and remains for only 1 more year from now. There would be no salvage value. (Round off your final answers to 2 decimal places) (a) The engineer plans to buy a new one to replace it at its end date. He wants to estimate the cost of a similar plating line at that time. Suppose the cost index has increased at an average rate of 8% per year and will continue to increase at this rate. How much is the estimated cost of the new plating line? (4 marks) (b) Moreover, the engineer also wants to lower the financing burden. He suggests reserving a lump sum as the replacement fund on a guaranteed investment fund, which has a rate of return of 5% per annum. How much should be reserved today to achieve this goal? (4 marks) Since the fire suddenly shortened the life span of the plating line, the engineer wants to migrate the risk by subscribing a special Refitting Service Plan so that the life span of the new plating line can be extended to 10 years. The first annual refitting service charge ($15,000) will be paid at the Day 1 of purchasing the new equipment. As the equipment ages, this charge is expected to be increasing at ($1,500+4) every year. The MARR is 10% per annum. [NOTE: Year 0 is today; Year 1 is Day 1 of purchasing the new equipment] (c) List all the values of the given factors required for the calculation of gradient annuity at Year 1. (4 marks) (d) Draw a cashflow diagram to illustrate your payment schedule. + (5 marks) (e) How much would be the total Refitting Service charges discounted back to the Day 1 of purchasing the new equipment? (8 marks)
