A 5-year-old machine, whose current market value is $5000, is being analyzed to determine its minimum EUAC at a 10% interest rate. Salvage value and maintenance estimates and the corresponding marginal costs are given in the following table. Data CalculatingMarginal Costs Year Salvage Value O&M Cost [latex]S_{t-1}(1+i)[/latex] [latex]-S_{t}[/latex] Marginal Cost 0 $5,000 1 4000 $0 $5,500 $–4000 $1,500 2 3500 100 4400 –3500 1000 3 3000 200 3850 –3000 1050 4 2500 300 3300 –2500 1100 5 2000 400 2750 –2000 1150 6 2000 500 2200 –2000 700 7 2000 600 2200 –2000 800 8 2000 700 2200 –2000 900 9 2000 800 2200 –2000 1000 10 2000 900 2200 –2000 1100 11 2000 1000 2200 –2000 1200

Because the marginal costs have a complex, nonincreasing pattern, we must calculate the defender’s minimum EUAC. Years Kept, n Salvage EUAC of Value (S) at End of Year n Maintenance Cost for Year If Retired at End of Year n EUAC of Capital Recovery(P−S)× (A/P, 10%, n) + Si EUAC of Maintenance 100( A/G, 10%,n) Total EUAC 0 P = $5000 1 4000 $0 $1100 + 400 $0 $1,500 2 3500 100 864 + 350 48 1262 3 3000 200 804 + 300 94 1198 4 2500 300 789 + 250 138 1177 5 2000 400 791 + 200 181 1172 6 2000 500 689 + 200 222 1111 7 2000 600 616 + 200 262 1078 8 2000 700 562 + 200 300 1062 9 2000 800 521 + 200 337 1058← 10 2000 900 488 + 200 372 1060 11 2000 1000 462 + 200 406 1068 AminimumEUAC of $1058 is computed at Year 9 for the existingmachine. Notice that the EUAC begins to increase with n when the marginal cost in Year 10 exceeds the EUAC for 9 years.

Question 13.6: A 5-year-old machine, whose current market value is $5000, i...

Engineering Economic Analysis

A 5-year-old machine, whose current market value is $5000, is being analyzed to determine its minimum EUAC at a 10% interest rate. Salvage value and maintenance estimates and the corresponding marginal costs are given in the following table.

Data			CalculatingMarginal Costs
Year	Salvage Value	O&M Cost	$S_{t-1}(1+i)$	$-S_{t}$	Marginal Cost
0	$5,000
1	4000	$0	$5,500	$–4000	$1,500
2	3500	100	4400	–3500	1000
3	3000	200	3850	–3000	1050
4	2500	300	3300	–2500	1100
5	2000	400	2750	–2000	1150
6	2000	500	2200	–2000	700
7	2000	600	2200	–2000	800
8	2000	700	2200	–2000	900
9	2000	800	2200	–2000	1000
10	2000	900	2200	–2000	1100
11	2000	1000	2200	–2000	1200

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