Question

In: Economics

A machine costs $17053 and is expected to have a scrap value of $2171 whenever it...

A machine costs $17053 and is expected to have a scrap value of $2171 whenever it is retired. Operating and Maintenance costs are $1517 for the first year and expected to increase by $1457 thereafter. If the MARR is 11%, determine the minimum equivalent uniform annual cost associated with the optimal economic life of the machine. The service life of this machine is 5 years. Note: round your answer to two decimal places, and do not include spaces, currency signs, plus or minus signs, nor commas.

Solutions

Expert Solution

MARR = 11%

Using Excel for Economic life analysis

Year Discount factor O&M cost PV (O&M) Cumulative (O&M) Cumulative (O&M) + Initial Cost Salvage value PV (Salvage value) NPV (A/P,11%,n) EUAC
A B C D=C*B E F=E+17053 G H=G*B I=F-H J K = I*J
1 0.900901 1517.00 1366.67 1366.67 18419.67 2171.00 1955.86 16463.81 1.110000 18274.83
2 0.811622 2974.00 2413.77 3780.43 20833.43 2171.00 1762.03 19071.40 0.583934 11136.43
3 0.731191 4431.00 3239.91 7020.34 24073.34 2171.00 1587.42 22485.92 0.409213 9201.53
4 0.658731 5888.00 3878.61 10898.95 27951.95 2171.00 1430.10 26521.84 0.322326 8548.69
5 0.593451 7345.00 4358.90 15257.85 32310.85 2171.00 1288.38 31022.47 0.270570 8393.76
Discount factor 1/(1+0.11)^n
(A/P,i,n) i((1 + i)^n)/((1 + i)^n-1)

Minimum EUAC = 8393.76 at 5 yrs

So economic service life is 5 yrs


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