EUAC Determine the annual cost (EUAC) of operating the pick-and-place robot of Example 12.1 for each of the next 5 years. The year-end salvage values and the maintenance costs are:

Question

EUAC

Determine the annual cost (EUAC) of operating the pick-and-place robot of Example 12.1 for each of the next 5 years. The year-end salvage values and the maintenance costs are:

Year	Year-End Salvage Value	Maintenance Cost
1	$4,000	$200
2	$3,500	$300
3	$3,000	$400
4	$2,000	$500
5	$1,000	$600

Accepted Answer

The given data may be difficult to comprehend. What they mean, for example for year 1, is that if we keep the robot for one more year, then its maintenance cost for the year will be $200, and at the end of the year its salvage value will be $4,000.

On the other hand, the data for year 3 say that if we keep the robot for 3 years, then its maintenance costs will be $200 for year 1, $300 for year 2, and $400 for year 3, and at the end of the third year its salvage value will be $3,000. That means, as far as the data for year 3 are concerned, the $4,000 and $3,500 data in column 2 for years 1 and 2 are irrelevant.

Thus, the appropriate cashflow table, after posting the market value as year-0 cash outflow, for analyzing the robot to keep it for 3 years is:

Year	0	1	2	3	Salvage Value
Cashflow	-$5,000	-$200	-$300	-$400	3,000

Similarly, the cashflow table appropriate for the 5-year analysis is

Year	0	1	2	3	4	5	Salvage Value
Cashflow	-$5,000	-$200	-$300	-$400	-$500	-$600	$1,000

Thus, the given data in this example are concise, wherefrom the cashflow table appropriate to the particular analysis should be derived.

We begin by creating a modified table based on the previous discussions. The table will also contain results of the analysis for each year under the heading EUAC.

Remaining Life n (yrs)	Year-end Value	Maintenance Cost	EUAC
0	$5,000
1	$4,000	$200
2	$3,500	$300
3	$3,000	$400
4	$2,000	$500
5	$1,000	$600

Note that we have changed the title of column 1 to reflect more accurately the meaning of “year” by calling it the remaining life of the robot. The second column entitled year-end value denotes the salvage value at the end of the year, while the maintenance costs appear in column 3. Also note the introduction of a new row for year 0, containing the robot’s current market value of $5,000. Note that this sum, and all the others under column 2, represents the investment, for the corresponding remaining life, in the defender if it is kept in use (not sold off).

We now analyze the data, following the procedure explained in Example 12.2, to determine the EUAC for each of the five options—keeping the robot for 1 year, keeping the robot for 2 years … and keeping the robot for 5 years.

The calculations to determine[latex]^{9}[/latex] the EUAC can be approached by one of the following two ways.

[latex]^{9}[/latex]Refer to Chapter 6 if you can’t follow the discussions.

Question 12.3: EUAC Determine the annual cost (EUAC) of operating the pick-...

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