Question 10.P.7: Consider the replacement situation indicated in Table 10-6. ......

Schaum’s Outline of Engineering Economics [1215911]

Consider the replacement situation indicated in Table 10-6. If estimates beyond 8 years are unreliable and if the MARR is 15%, decide whether it is expedient to replace the current equipment.

Table 10-6
	Salvage Value		Original Cost	Annual Cost	Services Life
	Now	End of Life
Current Equipment	$8000	$1000	$17 000	$3600	8 more years
Replacement Candidate	0	6000	19 000	800	15 years

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The study period is limited by the current equipment and the forecast horizon to 8 years.

$EUAC_{\text{current}}$ (8) = ($8000 – $1000) (A/P, 15%, 8) + (0.15)($1000) + $3600 = $5310

For the replacement candidate, the present-worth cost is given by

PW $_{\text{replacement}}$ = $19 000 + $800(P/A, 15%, 15) – $6000(P/F, 15%, 15) = $22 940

Annualizing over the 8-year period,

EUAC $_{\text{replacement}}$ (8) = $22.940(A/P, 15%, 8) = $5112

Replace the current equipment.

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