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Question 10.4: Compute the CUV for keeping the old pump of Example 10.3 ano......

Compute the CUV for keeping the old pump of Example 10.3 another four years, as against buying the new pump and keeping it seven years.

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Substituting the numerical values from Example 10.3 and Appendix A into (10.2), we find

CUV = P_1 + [EUAC_2(n_2) – EUAC_1(n_1)] (PIA, i%, n_1)  (10.2)

CUV = $1200 + ($1368.52 – $1852.18) (0.35027)^{-1}

= $1200 – $1381 = -$181

The CUV is less than the current salvage value by $1381, which amount represents the present-worth loss that would be incurred in keeping the old pump four more years.

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