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A city water department is considering replacing its main pump. This pump can be kept in...

A city water department is considering replacing its main pump. This pump can be kept in service for an additional two years, or it can be sold for $32,000 and replaced by a new pump. The market value of the current pump will become $28000 and $20000 at the end of the first, and second years, respectively. The operating expenses of the pump are $16,000 during the first year, and $20,000 during the second year. The purchase price of the replacement pump is $50,000, and it has an estimated economic life of 5 years, and a $8,000 market value at that time, and a fixed annual operating cost of $15,000. Assuming the MARR is 10%:

a) Determine the economic service life of the current pump. b) Using the Annual Equivalent Cost (AEC) of the new pump, determine when the

current pump should be replaced

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Expert Solution

ekkarill92 answered 2 years ago
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