Question

A city water and​ waste-water department has a​ four-year-old sludge pump that was initially purchased for​ $65,000. This pump can be kept in service for an additional four​ years, or it can be sold for $35,500 and replaced by a new pump. The purchase price of the replacement pump is ​$49,500. The projected MVs and operating and maintenance costs over the​ four-year planning horizon are shown in the table that follows. Assuming the MARR is 88​%,

​(a) determine the economic life of the challenger and ​(b) determine when the defender should be replaced.

   Defender       Challenger  
Year   MV at EOY   O&M Costs   MV at EOY   O&M Costs
1   24,500   17,500   38,500   13500
2   21,500   20,500   30,500   16,500
3   18,500   23,500   22,500   19,500
4   15,500   26,500   14,500   22,500
              

Answer 1

a. Annual worth of Challenger for years (1 - 4). Economic life is 2 years and EUAC is $28036.92

2. Annual worth of Defender for years (1 - 4). Minimum EUAC of the Defender is $28228.78 which is higher than minimum EUAC of the challenger so the defender should be replaced immediately and now