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engineering exonomics

Question 1 (4 marks)

A manufacturing company operates a joint former that cost $60,000 to purchase and $ 100,000 to install seven years ago. The market value now is $33,000 and this will decline by 12% of current value each year for the next three years. Operating and maintenance costs are estimated to be $34,000 this year, and are expected to increase by $500 per year.

a) How much should the EAC of a new joint former be over its economic life to justify replacing the old one sometime in the next three years? MARR is 10%

b) The EAC for a new joint former turns out to be $10,300 for a 10 year life. Should the old joint former be replaced within the next three years? If so, when?

Question 2 (3 marks)

A new technology that came commercially available costs $17,000, will generate net savings of $3,000 per year over 7 year life, and be salvaged for $1,000. The before-tax MARR is 10%, tax rate is 40% and this new technology is classified at 20% CCA rate. What is the exact after-tax IRR on this investment? Should the investment be made?

Question 3 (3 marks)

A long-term consulting contract guarantees $25,000 per year for five years. Inflation will be 3% this year, 5% next year and then will stay at 10% indefinitely. The real MARR is 12%. What is the present worth of this contract?

Skills: Accounting, Engineering, Finance

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