Solve These:-
A crashing machine that is a basic component of a metal recycling operation is wearing out faster than expected. The machine was purchased 2 years ago for $400,000. At that time, the buyer thought the machine would serve its needs for at least 5 years, at which time the machine would be sold to a smaller independent recycler for $30,000. Now, however, the company thinks the market value of the diminished machine is only $50,000. If it is kept, the machine's operating cost will be $37,000 per year for the next 2 years, after which it will be scrapped for $1000. If it is kept for only 1 year, the market value is estimated to be $10,000. Altema- tively, the company can of nice the process now for a fixed cost of $56,000 per year. At an interest rate of 10%% per year, should the company continue with the current machine or o arce the process? The data associated with operating and maintain- ing an asset are shown below. The company man- ager has already decided to keep the machine for I more year (ie., until the end of year 1), but you have been asked to determine the cost of keeping it more year after that. At an interest rate of 10% ber year, estimate the AW of keeping the machine from year I to year 2. Operating Cost. Year Market Value, $ $ per Year 30,000 -15,000 25,000 -15,000 14,000 -15,000 10,000 -15,000Two years ago, Toshiba Electronics made a $15 million investment in new assembly line machinery. It purchased approximately 200 units at $70,000 each and placed them in plants in 10 different countries. The equipment sorts, tests, and performs insertion-order kitting on electronic components in preparation for special-purpose circuit boards. This year, new inter- national industry standards will require a $16,000 retrofit on each unit, in addition to the ex- pected operating cost. Due to the new standards, coupled with rapidly changing technology, a new system is challenging the retention of these 2-year-old machines. The chief engineer at Toshiba USA realizes that the economics must be considered, so he has asked that a replace- ment study be performed this year and each year in the future, if need be. The i is 10% and the estimates are below. Challenger: First cost: $50,000 Future market values: decreasing by 20% per year Estimated retention period: no more than 10 years AOC estimates: $5000 in year I with increases of $2000 per year thereafter Defender: Current international market value: $15,000 Future market values: decreasing by 20% per year Estimated retention period: no more than 3 more years AOC estimates: $4000 next year, increasing by $4000 per year thereafter, plus the $16,000 retrofit next year (a) Determine the AW values and economic service lives necessary to perform the replacement study. (b) Perform the replacement study now. (c) After 1 year, it is time to perform the follow-up analysis. The challenger is making large inroads to the market for electronic components assembly equipment, especially with the new international standards features built in. The expected market value for the defender is still $12,000 this year, but it is expected to drop to virtually nothing in the future-$2000 next year on the worldwide market and zero after that. Also, this prematurely outdated equipment is more costly to keep serviced, so the estimated AOC next year has been in- creased from $8000 to $12,000 and to $16,000 two years out. Perform the follow-up re- placement study analysis.The table below shows present worth calculations of the costs associated with using a presently owned machine ( defender) and a possible replace- ment (challenger) for different numbers of years. Determine when the defender should be replaced using an interest rate of 10%% per year and a 3-year study period. Show solutions (a) by hand and (b) by spreadsheet. FW If Kept/Used Stated Number of Years Number of Years, $ Kept/Used Defender Challenger -36,000 -84,DO0 -75,DO0 -96,000 -125,00D - 102,DO0 -166,000 -217,DOD -149,000In 2008, Amphenol Industrial purchased a new quality inspection system for $530,000. The esti- mated salvage value was $30,000 after 8 years. Currently the expected remaining life is 3 years with an AOC of $27,000 per year and an estimated salvage value of $30,000. The new president has recommended early replacement of the system with one that costs $400,000 and has a 5-year economic service life, a $45,000 salvage value, and an estimated AOC of $50,000 per year. If the MARR for the corporation is 12% per year, find the minimum trade-in value now necessary to make the president's re economically advantageous A CNC milling machine purchased by Proto Tool and Die 10 years ago for $75,000 can be used for } more years. Estimates are an annual operating cost of $63,000 and a salvage value of $25,000. A chal- longer will cost $130,000 with an economic life of 6 years and an operating cost of $32,000 per year Its salvage value will be $45,000. On the basis ofCASE STUDY WILL THE CORRECT ESL PLEASE STAND? Background Based on previous logbook data, the current edimiles for number of operating hours per year are as follows New putiper ayala equipment is under consideration by a Gill Col chemical processing plant One crucial puny Hours per Year mines highly erosive liquids from specially lined tanks an SO Intercoastal barges into cleage and preliminary refining fa 1501 cilities docloude. Because of the variable quality of the raw chemical and the high pressures imposed on the pump chassis and impeller, a choc log to maintained on the number of Case Study Questions hours per year that the purtip operates. Safety records and pimp compareal deterioration are considered critical control I. Delermine the economic service life of the pump, How points for this salem. As curreally planned, rebuild and does the ESL compare with the maximumn allowed MRO call enlimited are increased accordingly when cumul cchuilder the operating time reaches the cook-hour mark. 1. The plant superintendent hold you, the safely anginca, that only one rebuild should be planned for, becauseIn a replacement study, what is meant by "taking the nonowner's viewpoint"? An asset that was purchased 3 years ago for $100,000 is becoming obsolete faster than ex- pected. The company thought the asset would last 3 years and that its book value would decrease by $20,000 each year and, therefore, be worthless at the end of year 3. In considering a more versatile, more reliable high-tech replacement, the company discovered that the presently owned asset has a market value of only $15,000. If the replacement is purchased immediately at a first cost of $75,000 and if it will have a lower annual worth, what is the amount of the sunk cost?' Assume the company's MARR is 15% per year. As a muscle car aficionado, a friend of yours likes to restore cars of the 60s and 70s and sell them for a poofit. He started his latest project (a 1965 Shelby GT350) four months ago and has a total of $126,000 invested so far. Another opportunity has come up (a 1969 Dodge Charger) that he is think- ing of buying because he believes he could sell it for a profit of $60,000 after it is completely re- stored. To do so, however, he would have to sell the unfinished Shelby first. He thought that the completely restored Shelby would be worth $195,000, resulting in a tidy profit of $22,000, but in its half-restored condition, the most he could get now is $115,000. In discussing the situation with you, he stated that if he could sell the Shelby now and buy the Charger at a reduced price, he would make up for the money he will lose in selling the Shelby at a lower-than-desired price. (a) What is wrong with this thinking? (b) What is his sunk cost in the Shelby
