A machine has a first cost of $14,000. Its market value declines by 20% annually

Question

A machine has a first cost of $14,000. Its market value declines by 20% annually. The repair costs are covered by the warranty in Year 1, and then they increase $600 per year. The firm's MARR is 12%. Find the minimum EUAC for this machine and its economic life. A vehicle has a first cost of $20,000. Its market value declines by 15% annually. It is used by a firm that estimates the effect of older vehicles on the firm's image. A new car has no "image cost." But the image cost of older vehicles climbs by $700 per year. The firm's MARR is 10%. Find the minimum EUAC for this vehicle and its economic life.

Explanation / Answer

Answer:11 If the market value falls by 20%, then

Salvage value after 1 year = 14000*.8 =11,200

Salvage value after 2 year = 11200*.8 =8960 and so on.

EUAC of capital cost = (P-S) *(A/P,i,n)+S*i

Table shows the calculation of EUAC due to capital cost

O& M cost is A+G series, G = 600. EUAC of O&M is as follows

The minimum EUAC is 4224.56 and economic life is 4 years.

Year P S A/P,12%,n EUAC=(P-S)*(A/P,12%,n)+S*0.12 0 14000 1 14000 11200 1.12 4480 2 14000 8960 0.5917 4057.37 3 14000 7168 0.4163 3704.32 4 14000 5734.40 0.3292 3409.16 5 14000 4587.52 0.2774 3161.52 6 14000 3670.02 0.2432 2952.65 7 14000 2936.01 0.2191 2776.44 8 14000 2348.81 0.2013 2627.24

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