5. Sarah Miller is an engineer trying to determine the economic life of a new me

Question

5. Sarah Miller is an engineer trying to determine the economic life of a new metal press. The press costs $10,000 initially. First year maintenance cost is $1,000. Maintenance cost is forecast to increase $1,000 per year for each year after the first. The interest rate is 15%. Fill in the table below and determine the economic life of the press. e Consider only maintenance and capital recovery in your analysis. EUAC = Equivalent Uniform Annual Cost. Economic life is point at which the total EUAC is at minimum EUAC of Maintenance Total EUAC MaintenanceEUAC of Year Cost Capital Recove $ 1000 $ 2000 $ 3000 $ 4000 $ 5000 $ 6000 $ 7000 $ 8000 2 3 4 7 Show formula Sarah used to calculate EUAC of Capital recovery and a sample calculation for one of the years. Show formula Sarah used to calculate EUAC of Maintenance and a sample calculation for one of the years.

Explanation / Answer

Year. Maintenance EUAC of. EUAC of. Total EUAC

Cost. Capital Maintenance

Recovery
1. $1,000 $11,500. $1,000 $12,500
2 2,000 6,151 1,465. 7,616
3. 3,000 4,380. 1,907 6,287
4 4,000 3,503 2,326 5,829
5. 5,000 2,983 2,723. 5,706
6 6,000 2,642 3,097. 5,739
7 7,000 2,404 3,450. 5,854
8 8,000. 2,229 3,781. 6,010
Economic Life = 5 yrs (EAC = minimum)
EAC of Capital Recovery = $10,000 (A/P, 15%, n)

EAC of Maintenance = $1,000 + 1,000 (A/G, 15%, n)

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