In order to replace an old process for producing a polymer that reduces friction loss in engines, two current-technology machines have been identified. Process K will have a first cost of $160,000, an operating cost of $7000 per month, and a salvage value of $50,000 after 1 year and $40,000 after its maximum 2-year life. Process L will have a first cost of $210,000, an operating cost of $5000 per month, and salvage values of $100,000 after 1 year, $70,000 after 2 years, $45,000 after 3 years, and $26,000 after its maximum 4-year life. You have been asked to determine which process is better using a study period of (a) 1 year, (b) 2 years, and (c) 3 years. The company’s MARR is 12% per year compounded monthly.
In order to replace an old process for producing a
polymer that reduces friction loss in engines, two
current-technology machines have been identified.
Process K will have a first cost of $160,000, an
operating cost of $7000 per month, and a salvage
value of $50,000 after 1 year and $40,000 after its
maximum 2-year life.
Process L will have a first cost of $210,000, an
operating cost of $5000 per month, and salvage
values of $100,000 after 1 year, $70,000 after
2 years, $45,000 after 3 years, and $26,000 after its
maximum 4-year life. You have been asked to determine
which process is better using a study period
of (a) 1 year, (b) 2 years, and (c) 3 years. The
company’s MARR is 12% per year compounded
monthly.
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