11. A new chemical remediation tank is needed. Current technology tanks, which c
ID: 2440763 • Letter: 1
Question
11. A new chemical remediation tank is needed. Current technology tanks, which cost $150,000, must be maintained at the end of its useful life). These tanks will have a useful life of 20 every 2 years at a cost of $10,000 (including years and a salvage value of 5% of periodic maintenance costs and a tank will last 20 years. If a new tanks cost $250,000, what minimum salvage value, as a percentage of first cost, would be required forthis technology to be a better option? Use a 2% Interest rate if you convert an interest rate, you may round to the nearest interest rate available in the factor tables first cost. A tank with new technology has just come on the market. There are no 5.00% 8.00% 11.25% 14.25%Explanation / Answer
ANSWER:
1) current technology
initial cost = $150,000
maintenance cost = $10,000
salvage value = 5% of initial cost = 5% * 150,000 = $7,500
i = 2% and n = 20 years
pw of current technology = initial cost + maintenance cost(p/f,i,2) + maintenance cost(p/f,i,4) + maintenance cost(p/f,i,6) + maintenance cost(p/f,i,8) + maintenance cost(p/f,i,10) + maintenance cost(p/f,i,12) + maintenance cost(p/f,i,14) + maintenance cost(p/f,i,16) + maintenance cost(p/f,i,18) + maintenance cost(p/f,i,20) + salvage value(p/f,i,20)
pw of current technology = -150,000 - 10,000(p/f,2%,2) - 10,000(p/f,2%,4) - 10,000(p/f,2%,6) - 10,000(p/f,2%,8) - 10,000(p/f,2%,10) -10,000(p/f,2%,12) - 10,000(p/f,2%,14) - 10,000(p/f,2%,16) - 10,000(p/f,2%,18) -10,000(p/f,2%,20) +7,500(p/f,2%,20)
pw of current technology = -150,000 - 10,000 * ( 0.9612 + 0.9238 + 0.888 + 0.8535 + 0.8203 + 0.7885 + 0.7579 + 0.7284 + 0.7002 + 0.673) + 7,500 * 0.673
pw of current technology = -150,000 - 10,000 * 8.0948 + 5,047.5
pw of current technology = -150,000 - 80,948 + 5,047.5
pw of current technology = -$225,900.5
2) new technology
initial cost = $250,000
let salvage value be x% of initial cost
i = 2% and n = 20 years
pw of new technology = initial cost + x * initial cost(p/f,i,n)
pw of new technology = -250,000 + x * 250,000(p/f,2%,20)
we will equate the pw of current technology to new technology.
-225,900.5 = -250,000 + x * 250,000 * 0.673
-225,900.5 + 250,000 = x * 168,250
24,099.5 = x * 168,250
x = 24,099.5 / 168,250
x = 0.1432 or 14.32%
so option d is the right answer.
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