This document discusses replacement analysis and economic service life. It defines key replacement terminology and outlines two approaches - the cash flow approach and opportunity cost approach. It explains how to determine the economic service life by minimizing the total annual equivalent cost. When the required service period is long, the strategies for replacement analysis under an infinite planning horizon are discussed. An example problem compares retaining an old machine versus buying a new one, calculating the economic life for each and determining the optimal replacement time.
Systematic Economic Analysis Technique for analysisNaganna Chetty
Ranking Methods or Incremental Methods
Present Worth
Future Worth
Annual Worth
Capitalized Worth
Discounted Payback Period
Payback Period
Incremental Methods
Internal Rate of Return
External Rate of Return
Modified Internal Rate of Return
Benefit/Cost Ratio
PREDICTION OF REPAIR & MAINTENANCE COSTS OF DIESEL ENGINEijmech
Diesel engine is widely use for different applications, the failure frequency of diesel engine is more increase to increase the age & use of engine in order to take decision to replacement of engine on the basis of Repair & Maintenance cost (R&M) & predication of future Repair & Maintenance costs of diesel engine used in Borewell compressor. Present case study discusses prediction of accumulated R&M costs (Y) of Diesel engine against usage in hours (X). Recorded data from the company service station is used to determine regression models for predicting total R&M costs based on total usage hours. The statistical results of the study indicates that in order to predict total R&M costs is more useful for replacement
decisions than annual charge.
Systematic Economic Analysis Technique for analysisNaganna Chetty
Ranking Methods or Incremental Methods
Present Worth
Future Worth
Annual Worth
Capitalized Worth
Discounted Payback Period
Payback Period
Incremental Methods
Internal Rate of Return
External Rate of Return
Modified Internal Rate of Return
Benefit/Cost Ratio
PREDICTION OF REPAIR & MAINTENANCE COSTS OF DIESEL ENGINEijmech
Diesel engine is widely use for different applications, the failure frequency of diesel engine is more increase to increase the age & use of engine in order to take decision to replacement of engine on the basis of Repair & Maintenance cost (R&M) & predication of future Repair & Maintenance costs of diesel engine used in Borewell compressor. Present case study discusses prediction of accumulated R&M costs (Y) of Diesel engine against usage in hours (X). Recorded data from the company service station is used to determine regression models for predicting total R&M costs based on total usage hours. The statistical results of the study indicates that in order to predict total R&M costs is more useful for replacement
decisions than annual charge.
Cosmetic shop management system project report.pdfKamal Acharya
Buying new cosmetic products is difficult. It can even be scary for those who have sensitive skin and are prone to skin trouble. The information needed to alleviate this problem is on the back of each product, but it's thought to interpret those ingredient lists unless you have a background in chemistry.
Instead of buying and hoping for the best, we can use data science to help us predict which products may be good fits for us. It includes various function programs to do the above mentioned tasks.
Data file handling has been effectively used in the program.
The automated cosmetic shop management system should deal with the automation of general workflow and administration process of the shop. The main processes of the system focus on customer's request where the system is able to search the most appropriate products and deliver it to the customers. It should help the employees to quickly identify the list of cosmetic product that have reached the minimum quantity and also keep a track of expired date for each cosmetic product. It should help the employees to find the rack number in which the product is placed.It is also Faster and more efficient way.
Sachpazis:Terzaghi Bearing Capacity Estimation in simple terms with Calculati...Dr.Costas Sachpazis
Terzaghi's soil bearing capacity theory, developed by Karl Terzaghi, is a fundamental principle in geotechnical engineering used to determine the bearing capacity of shallow foundations. This theory provides a method to calculate the ultimate bearing capacity of soil, which is the maximum load per unit area that the soil can support without undergoing shear failure. The Calculation HTML Code included.
COLLEGE BUS MANAGEMENT SYSTEM PROJECT REPORT.pdfKamal Acharya
The College Bus Management system is completely developed by Visual Basic .NET Version. The application is connect with most secured database language MS SQL Server. The application is develop by using best combination of front-end and back-end languages. The application is totally design like flat user interface. This flat user interface is more attractive user interface in 2017. The application is gives more important to the system functionality. The application is to manage the student’s details, driver’s details, bus details, bus route details, bus fees details and more. The application has only one unit for admin. The admin can manage the entire application. The admin can login into the application by using username and password of the admin. The application is develop for big and small colleges. It is more user friendly for non-computer person. Even they can easily learn how to manage the application within hours. The application is more secure by the admin. The system will give an effective output for the VB.Net and SQL Server given as input to the system. The compiled java program given as input to the system, after scanning the program will generate different reports. The application generates the report for users. The admin can view and download the report of the data. The application deliver the excel format reports. Because, excel formatted reports is very easy to understand the income and expense of the college bus. This application is mainly develop for windows operating system users. In 2017, 73% of people enterprises are using windows operating system. So the application will easily install for all the windows operating system users. The application-developed size is very low. The application consumes very low space in disk. Therefore, the user can allocate very minimum local disk space for this application.
Democratizing Fuzzing at Scale by Abhishek Aryaabh.arya
Presented at NUS: Fuzzing and Software Security Summer School 2024
This keynote talks about the democratization of fuzzing at scale, highlighting the collaboration between open source communities, academia, and industry to advance the field of fuzzing. It delves into the history of fuzzing, the development of scalable fuzzing platforms, and the empowerment of community-driven research. The talk will further discuss recent advancements leveraging AI/ML and offer insights into the future evolution of the fuzzing landscape.
Automobile Management System Project Report.pdfKamal Acharya
The proposed project is developed to manage the automobile in the automobile dealer company. The main module in this project is login, automobile management, customer management, sales, complaints and reports. The first module is the login. The automobile showroom owner should login to the project for usage. The username and password are verified and if it is correct, next form opens. If the username and password are not correct, it shows the error message.
When a customer search for a automobile, if the automobile is available, they will be taken to a page that shows the details of the automobile including automobile name, automobile ID, quantity, price etc. “Automobile Management System” is useful for maintaining automobiles, customers effectively and hence helps for establishing good relation between customer and automobile organization. It contains various customized modules for effectively maintaining automobiles and stock information accurately and safely.
When the automobile is sold to the customer, stock will be reduced automatically. When a new purchase is made, stock will be increased automatically. While selecting automobiles for sale, the proposed software will automatically check for total number of available stock of that particular item, if the total stock of that particular item is less than 5, software will notify the user to purchase the particular item.
Also when the user tries to sale items which are not in stock, the system will prompt the user that the stock is not enough. Customers of this system can search for a automobile; can purchase a automobile easily by selecting fast. On the other hand the stock of automobiles can be maintained perfectly by the automobile shop manager overcoming the drawbacks of existing system.
Hybrid optimization of pumped hydro system and solar- Engr. Abdul-Azeez.pdffxintegritypublishin
Advancements in technology unveil a myriad of electrical and electronic breakthroughs geared towards efficiently harnessing limited resources to meet human energy demands. The optimization of hybrid solar PV panels and pumped hydro energy supply systems plays a pivotal role in utilizing natural resources effectively. This initiative not only benefits humanity but also fosters environmental sustainability. The study investigated the design optimization of these hybrid systems, focusing on understanding solar radiation patterns, identifying geographical influences on solar radiation, formulating a mathematical model for system optimization, and determining the optimal configuration of PV panels and pumped hydro storage. Through a comparative analysis approach and eight weeks of data collection, the study addressed key research questions related to solar radiation patterns and optimal system design. The findings highlighted regions with heightened solar radiation levels, showcasing substantial potential for power generation and emphasizing the system's efficiency. Optimizing system design significantly boosted power generation, promoted renewable energy utilization, and enhanced energy storage capacity. The study underscored the benefits of optimizing hybrid solar PV panels and pumped hydro energy supply systems for sustainable energy usage. Optimizing the design of solar PV panels and pumped hydro energy supply systems as examined across diverse climatic conditions in a developing country, not only enhances power generation but also improves the integration of renewable energy sources and boosts energy storage capacities, particularly beneficial for less economically prosperous regions. Additionally, the study provides valuable insights for advancing energy research in economically viable areas. Recommendations included conducting site-specific assessments, utilizing advanced modeling tools, implementing regular maintenance protocols, and enhancing communication among system components.
Overview of the fundamental roles in Hydropower generation and the components involved in wider Electrical Engineering.
This paper presents the design and construction of hydroelectric dams from the hydrologist’s survey of the valley before construction, all aspects and involved disciplines, fluid dynamics, structural engineering, generation and mains frequency regulation to the very transmission of power through the network in the United Kingdom.
Author: Robbie Edward Sayers
Collaborators and co editors: Charlie Sims and Connor Healey.
(C) 2024 Robbie E. Sayers
Water scarcity is the lack of fresh water resources to meet the standard water demand. There are two type of water scarcity. One is physical. The other is economic water scarcity.
Final project report on grocery store management system..pdfKamal Acharya
In today’s fast-changing business environment, it’s extremely important to be able to respond to client needs in the most effective and timely manner. If your customers wish to see your business online and have instant access to your products or services.
Online Grocery Store is an e-commerce website, which retails various grocery products. This project allows viewing various products available enables registered users to purchase desired products instantly using Paytm, UPI payment processor (Instant Pay) and also can place order by using Cash on Delivery (Pay Later) option. This project provides an easy access to Administrators and Managers to view orders placed using Pay Later and Instant Pay options.
In order to develop an e-commerce website, a number of Technologies must be studied and understood. These include multi-tiered architecture, server and client-side scripting techniques, implementation technologies, programming language (such as PHP, HTML, CSS, JavaScript) and MySQL relational databases. This is a project with the objective to develop a basic website where a consumer is provided with a shopping cart website and also to know about the technologies used to develop such a website.
This document will discuss each of the underlying technologies to create and implement an e- commerce website.
Immunizing Image Classifiers Against Localized Adversary Attacksgerogepatton
This paper addresses the vulnerability of deep learning models, particularly convolutional neural networks
(CNN)s, to adversarial attacks and presents a proactive training technique designed to counter them. We
introduce a novel volumization algorithm, which transforms 2D images into 3D volumetric representations.
When combined with 3D convolution and deep curriculum learning optimization (CLO), itsignificantly improves
the immunity of models against localized universal attacks by up to 40%. We evaluate our proposed approach
using contemporary CNN architectures and the modified Canadian Institute for Advanced Research (CIFAR-10
and CIFAR-100) and ImageNet Large Scale Visual Recognition Challenge (ILSVRC12) datasets, showcasing
accuracy improvements over previous techniques. The results indicate that the combination of the volumetric
input and curriculum learning holds significant promise for mitigating adversarial attacks without necessitating
adversary training.
3. 3
Defender:
an old machine
Challenger:
a new machine
Current market value:
selling price of the defender
in the market place
Sunk cost:
any past cost unaffected
by any future investment
decisions.
Trade-in allowance:
value offered by the
vendor to reduce the price
of a new equipment
Replacement Terminology
4. Replacement Analysis Fundamentals
4
Replacement projects are decision problems that involve the
replacement of existing out of date or worn-out assets.
When existing equipment should be replaced with more efficient
equipment?
Examine three aspects of the replacement problem
1) Approaches for comparing defender and challenger
2) Determination of economic service life
3) Replacement analysis when the required service period is long
5. Two basic approaches to analyze replacement problems
5
Cash Flow Approach
Treat the proceeds (amount of
money received) from sale of the
old machine as down payment
toward purchasing the new
machine. (Use it to bye the new
one)
This approach is meaningful when
both the defender and challenger
have the same service life.
Use PW or AE values in the
analysis
Opportunity Cost Approach
Treat the proceeds (amount of
money received) from sale of the
old machine as the investment
required to keep the old machine.
(Do not use the money to bye the
new one).
This approach is more commonly
practiced in replacement analysis.
12. Economic Service Life
Economic service life is the
remaining useful life of an asset
that results in the minimum annual
equivalent cost.
We should use the respective
economic service lives of the
defender and the challenger when
conducting a replacement analysis.
12
Capital (Ownership)
cost
Operating
cost
+
Minimize
Annual
Equivalent
Cost
13. Economic Service Life Continue….
13
Capital cost have two components: Initial investment ( I )
and the salvage value ( S ) at the time of disposal.
The initial investment for the challenger is its purchase price.
For the defender, we should treat the opportunity cost
(potential benefit that is given up as you seek an alternative
action) as its initial investment.
Use N to represent the length of time in years the asset will
be kept; ( I ) is the initial investment, and SN is the salvage
value at the end of the ownership period of N years.
The operating costs of an asset include operating and
maintenance (O&M) costs, labor costs, material costs and
energy consumption costs.
16. Here are some special cases that the economic
service life can be determined easily:
If the salvage value is constant and equal to the
initial cost, and the annual operating cost increases
with time, AEC is an increasing function of N and
attains its minimum at N = 1. In this case, we should
try to replace the asset as soon as possible.
If the annual operating cost is constant and the
salvage value is less than the initial cost and
decreases with time, AEC is a decreasing function
of N. In this case, we would try to delay
replacement of the asset as long as possible.
If the salvage value is constant and equal to the
initial cost and the annual operating costs are
constant, AEC will also be constant. In this case,
the time at which the asset is replaced does not
16
17. Example 12.4 Economic Service Life for a Lift Truck
17
A company considers buying a new electric forklift truck that
would cost $20,000, have operating cost of $6,000 in the first year,
and have a salvage value of $14,000 at the end of the first year. For
the remaining years, operating costs increase each year by 25%
over the previous year’s operating costs. Similarly, the salvage
value declines each year by 30% from the previous year’s salvage
value. The truck has a maximum life of eight years, without any
major engine overhaul. The firm’s required rate of return is 12%.
Find the economic service life of this new machine.
24. AEC if the Asset were Kept N Years
24
N = 1, AEC1 = $14,400
N = 2, AEC2 = $13,919
N = 3, AEC3 = $13,792
N = 4, AEC4 = $13,961
N = 5, AEC5 = $14,387
N = 6, AEC6 = $15,044
N = 7, AEC7 = $15,920
N = 8, AEC8 = $17,008
Minimum cost
If you purchase the asset, it is
most economical to replace
the asset every 3 years
Economic Service Life
26. Replacement Analysis
When the Required Service Period is Long
26
We know how the economic service life of an asset is determined.
The next question is to decide whether now is the time to replace the
defender. Consider the following factors:
Planning horizon (study period)
By planning horizon, it is meant the service period required by the
defender and future challengers.
The infinite planning horizon is used when we are unable to predict
when the activity under consideration will be terminated.
In other situations, the project will have a definite and predictable
duration. In these cases, replacement policy should be formulated
based on a finite planning horizon.
27. Decision Frameworks continue…….
27
Relevant cash flow information
Many varieties of predictions can be used to estimate the pattern of
revenue, cost and salvage value over the life of an asset.
Decision Criterion
The AE method provides a more direct solution when the planning
horizon is infinite. When the planning horizon is finite, the PW
method is convenient to be used.
Although the economic service life of the defender is defined as the
number of years of service that minimizes the annual equivalent
cost (or maximizes the annual equivalent revenue), the end of the
economic life is not necessarily the optimum time to replace the
defender.
28. 28
Handling Unequal Service Life Problems in Replacement Analysis
Let us consider a situation where you are comparing a defender
(D) with an economic service life of three years and a challenger
(C) with an economic service life of six years.
This means that if we decide to keep the old machine (D) for
three years, we will replace it at time 3 by an asset similar to the
new machine. This asset will in turn be replaced six years later, at
time 9, by another asset C.
There are two implied infinite sequences in this scenario:
Keep defender (D), buy a challenger (C) at time 3, buy another
challenger (C) at time 9, buy another challenger (C) at time 15, etc.
Buy challenger (C) at time 0, buy a challenger (C) at time 6, buy a
challenger (C) at time 12, and so on
29. 29
Handling Unequal Service Life Problems in Replacement Analysis
It is clear that the AE cost approach for either sequence of assets
is the same after the remaining life of the defender. Therefore, we
can directly compare the AEC for the remaining life of the
defender with the AEC for the challenger over its economic
service life.
30. 30
Replacement Strategies
under the Infinite Planning Horizon
Compute the economic lives of both defender and challenger.
Let’s use ND* and NC* to represent economic lives of the
defender and the challenger.
The annual equivalent cost for the defender and the challenger at
their respective economic lives are indicated by AED* and AEC*
Compare AED* and AEC*. If AED* is bigger than AEC*, it is more
costly to keep the defender than to replace it with the challenger.
Thus, the challenger should replace the defender now.
31. 31
Replacement Strategies
under the Infinite Planning Horizon
If the defender is not to be replaced now, when should it be
replaced?
First, we need to continue to use it until its economic life is over.
Then, calculate the cost of running the defender for one more
year. If this cost is greater than AEC*, the defender should be
replaced at the end of its economic life.
This process should be continued until you find the optimal
replacement time. This approach is called marginal analysis.
33. EXAMPLE 12.5 Replacement Analysis under the Infinite
Planning Horizon
General Engineering Company is considering replacing an old vertical
cylinder honing (polishing) machine. They are considering two options:
Option 1:
Retain or keep the old machine. If it is kept, the old machine can be
used for another six years with proper maintenance. The market value
of the machine is expected to decline 25% annually over the previous
years. The operating costs are estimated at $3,500 during the first year
and are expected to increase by $1,000 per year thereafter.
33
34. EXAMPLE 12.5 continue..........
Option 2:
Alternatively, the firm can sell the machine to another firm in the
industry now for $4,000 and buy new honing machine. The new
machine costs $12,000 and will have operating costs of $2,300 in the
first year, increasing by 20% per year thereafter. The expected
salvage value is $8,000 after one year and will decline 30% each
year thereafter. The company requires rate of return of 12%.
Find the economic life for each option, and determine when the
defender should be replaced.
34
40. Economic Service Life Calculation for Challenger
40
n Market
Value
O & M
Cost
CR
(12%)
OC
(12%)
AEC(12%
)
0 $12,000
1 $8,000 $2,300 $5,440 $2,300 $7,740
2 $5,600 $2,760 $4,459 $2,517 $6,976
3 $3,920 $3,312 $3,834 $2,753 $6,587
4 $2,774 $3,974 $3,377 $3,008 $6,385
5 $1,921 $4,769 $3,027 $3,285 $6,312
6 $1,345 $5,723 $2,753 $3,586 $6,339
7 $941 $6,868 $2,536 $3,911 $6,447
8 $659 $8,241 $2,362 $4,263 $6,625
Annual changes in
Market Value
- 30%
Annual increases in
O & M
20%
Interest rate 12%
41. Replacement Decisions
NC* = 5 years
AECC* = $6,312
Should replace the defender now?
No, because AECD* < AECC*
If not, when is the best time to replace
the defender?
Need to conduct the marginal analysis.
ND* = 1 year
AECD* = $4,980
42. Marginal Analysis – When to Replace the Defender
42
Question:
What is the additional (incremental) cost for keeping the defender
one more year from the end of its economic service life, from Year
1 to Year 2?
Financial Data:
Opportunity cost at the end of year 1: $3,000 (market value of the
defender at the end year 1)
Operating cost for the 2nd year: $4,500
Salvage value of the defender at the end of year 2: $2,250
n
Forecasted
Operating
Cost
Market Value
if Disposed of
0
$4,000
1
$3,500 $3,000
2
$4,500 $2,250
3
$5,500 $1,688
4
$6,500 $1,266
5
$7,500 $949
6
$8,500 $712
43. Step 1:
Calculate the equivalent cost of retaining the defender
one more year from the end of its economic
service life, say 1 to 2.
$3,000 (F/P,12%,1) + $4,500 - $2,250
= $5,610
Step 2:
Compare this cost with
AECC* = $6,312 of the challenger.
Conclusion:
Since keeping the defender for the 2nd year is less
expensive than replacing it with the challenger,
keep the defender beyond its economic service life.
43
1
2
$3000
$2250
$4,500
$5,610
1 2
44. Step 1: Calculate the equivalent cost of
retaining the defender one more year from
year 2 to 3.
$2,250 (F/P,12%,1) + $5,500 - $1,688
$2,250 x 1.12 + $5,500 - $1,688
= $6,332
Step 2: Compare this cost with
AECC* = $6,312 of the challenger.
Conclusion:
For year three, keeping the defender is more
expensive. This means that we should
replace the defender at the end of year two.
44
2
3
$2250
$1688
$5,500
$6,332
2 3
46. 46
12.1
NEWNAN Furniture owns and operates an industrial lift truck in their warehousing
operation. The record indicates that the lift truck was purchased four years ago at
$15,000. The estimated salvage value is $4,000 after four years of operation. First-
year O&M expenses were $2,000, but the O&M expenses have increased by $400
each year for the first four years of operation. Using i = 10% compute the annual
equivalent costs of the lift truck for four years.
12.1 SOLUTION
47. 47
12.5
A firm is considering the replacement of a 2,000 kg capacity pressing machine.
The machine was purchased five years ago at a cost of $22,000. The machine
was originally expected to have a useful life of 10 years and a $2,000 estimated
salvage value at the end of that period. However, the machine has not been
dependable and is frequently out of service while awaiting repairs. The
maintenance expenses of the pressing machine have been rising steadily and
currently amount about $5,000 per year. The machine could be sold now for
$6,000. If it is retained or kept the machine will require an immediate $2,500
overhaul to keep it in operable condition. This overhaul will neither extend the
originally estimated service life nor increase the value of the machine. The
updated annual operating costs, engine overhaul cost, and market values over the
next five years are estimated as follows:
48. 48
12.5
N Engine Market
O & M
Overhau
l Value
-5 22,000
-4
-3
-2
-1
0 $2,500 $6,000
1 $5,000 $4,500
2 $5,500 $3,500
3 $6,000 $3,000
4 $6,500 $3,000 $2,500
5 $7,500 $2,000
49. 49
12.5
A drastic increase in operating costs during the fourth year is expected as a result
of another overhaul, that is about $3,000 which will be required in order to keep
the machine in operating condition. The firm’s MARR is 15%.
a) If the machine is to be sold now, what will be its sunk cost?
b) What is the opportunity cost of not replacing the machine now?
c) What is the equivalent annual cost of owning and operating the machine for
two more years?
d) What is the equivalent annual cost of owning and operating the machine for
five more years?
50. 12.5) SOLUTION
(a) Purchase cost = $22,000, market value = $6,000,
sunk cost = $22,000 - $6,000 = $16,000
(b) Opportunity cost = $6,000
(c)
(d)
50
PW(15%) $6,000 $2,500 $5,000( / ,15%,1)
($5,500 $3,500)( / ,15%,2)
$14,360.2
AEC(15%) $14,360.2( / ,15%,2)
$8,832.96
P F
P F
A P
PW(15%) $8,500 $5,000( / ,15%,1) $5,500( / ,15%,2)
$6,000( / ,15%,3) $9,500( / ,15%,4)
($7,500 $2,000)( / ,15%,5)
$29,117.84
AEC(15%) $29,117.84( / ,15%,5)
$8,686.30
P F P F
P F P F
P F
A P
N Engine Market
O & M Overhaul Value
-5 22,000
-4
-3
-2
-1
0 $2,500 $6,000
1 $5,000 $4,500
2 $5,500 $3,500
3 $6,000 $3,000
4 $6,500 $3,000 $2,500
5 $7,500 $2,000
51. 51
12.11
A special-purpose machine is to be purchased at a cost of $30,000. The
following table shows the expected annual operating and maintenance cost
and the salvage value for each year of service: If the interest rate is 12%,
what is the economic service life for this machine?
Year of
Service
O & M
Cost
Market
Value
0 $30,000
1 $5,000 $25,800
2 $6,500 $16,000
3 $10,000 $10,000
4 $12,500 $5,000
5 $14,800 $0
52. 52
12.11) SOLUTION
At i = 12%, the economic service life is 1 year.
Interest rate 12%
n Market Value O&M Costs CR(12%) OC(12%) AEC(12%)
0 $30,000
1 $25,800 $5,000 $7,800 $5,000 $12,800
2 $16,000 $6,500 $10,204 $5,708 $15,911
3 $10,000 $10,000 $9,527 $6,980 $16,507
4 $5,000 $12,500 $8,831 $8,135 $16,966
5 $0 $14,800 $8,322 $9,184 $17,506
53. 53
12.15
Advanced Electrical Insulator Company is considering replacing a broken inspection
machine, which has been used to test the mechanical strength of electrical
insulators, with a newer and more efficient one. If repaired, the old machine can be
used for another five years, although the firm does not expect to realize any salvage
value from scrapping it in five years.
Alternatively, the firm can sell the machine to another firm in the industry now for
$5,000. If the machine is kept, it will require an immediate $1,200 overhaul to
restore it to operable condition. The overhaul will neither extend the service life
originally estimated nor increase the value of the inspection machine. The operating
costs are estimated at $2,000 during the first year and are expected to increase by
$1,500 per year thereafter. Future market values are expected to decline by $1,000
per year.
The new machine costs $10,000 and will have operating costs of $2,000 in the first
year, increasing by $800 per year thereafter. The expected salvage value is $6,000
after one year and will decline 15% each year. The company requires a rate of
return of 15%.
Find the economic life for each option, and determine when the defender should be
replaced.
54. 54
Interest rate 15%
n Market Value O&M Costs CR(15%) OC(15%) AEC(15%)
0 $5,000 $1,200
1 $4,000 $2,000 $1,750 $3,380 $5,130
2 $3,000 $3,500 $1,680 $3,436 $5,116
3 $2,000 $5,000 $1,614 $3,886 $5,500
4 $1,000 $6,500 $1,551 $4,410 $5,961
5 $0 $8,000 $1,492 $4,942 $6,434
12.15) Defender: Economic service year is 2 years
55. 55
Interest rate 15%
n Market Value O&M Costs CR(15%) OC(15%) AEC(15%)
0 $5,000 $1,200
1 $4,000 $2,000 $1,750 $3,380 $5,130
2 $3,000 $3,500 $1,680 $3,436 $5,116
3 $2,000 $5,000 $1,614 $3,886 $5,500
4 $1,000 $6,500 $1,551 $4,410 $5,961
5 $0 $8,000 $1,492 $4,942 $6,434
12.15) Defender: Economic service year is 2 years
Marginal analysis:
1. Opportunity cost at the end of year two,
which is equal to the market value then,
or $3,000
2. Operating cost for the third year: $5,000
3. Salvage value of the defender at the end
of year three: $2,000
The cost of using the defender for one more
year from the end of its economic service life is
3 $3,000( / ,15%,1) $5,000 $2,000
$6, 450
F F P
Compare this cost with the challenger.
Since keeping the defender for the 3rd
year is more expensive than replacing it
with the challenger.
Do not keep the defender beyond its
economic service life.