A company currently has an old catheter extruding system that is getting expensi

Question

A company currently has an old catheter extruding system that is getting expensive to operate and maintain. They are considering the purchase of a new catheter extrusion system that would cost $75,000 but offers savings of $5000 per year in maintenance costs and savings of $350 per day in operating costs. Assume a 5-year planning horizon, MARR=10%, a 50% tax rate, and straight-line depreciation (assume P=33,000, S=0, and N=5). The asset will have no value at the end of its life. The company is not sure how many days per year they will need the system to operate. Calculate the breakeven number of days per year the new catheter extrusion system must be used to justify its purchase.

Explanation / Answer

Let the number of days be X

Find the annual equivalent cost of the new catheter extrusion

= -75000(A/P, 10%, 5) + (5000 + 350X - 15000)*(100 - 50%) + 15000

= -19785 + 10000 + 175X

This annual equivalent cost should be at most equal to the cost incurred without it

-9785 + 175X = -350X - 5000

4785 = 525X

This gives X = 9.15 days.

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.