Your division is considering the purchase of a Cramit packaging machine for $200

Question

Your division is considering the purchase of a Cramit packaging machine for $200,000. You project that the operating and maintenance costs (O&M;) will be $50,000 this year and that they will increase by $20,000 per year. The salvage value is expected to be $150,000 at any time you sell the machine for the next 5 years. Your old packaging machine will have a EUAC of $ 1 28,000, if you keep it for its optimum economic life. Your MARR is 10% (20 pts partial credit as indicated if detail analysis are shown) . total. O) Wha is he optimum ecomomic Mie for henewrami aaging mc What is the optimum economic life for the new Cramit packaging machine?(10 pts, partial credit) A. 1 year (a) C. 3 years D. 4 years E. 5 years B. 2 years

Explanation / Answer

ANSWER FOR 1ST QUESTION IS

OPTION B

let n be the optimum life

hence 200000 -15000/1.1^n=50000/1.1^0 +70000/1.1^1 + 90000/1.1^2 ..

n is the life required so that profit by cramit machine will be more ie cost is less

hence by seeing the cost closely n should come around 2,3 .we will check for it

for n =2

LHS =76033

RHS =113636

for n =3

LHS=87302

RHS =188016.5

hence for n=2 RHS >LHS first time (clearly for n=1 RHS<LHS)

hence optimum life is 2 yrs

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