Question 1

 
(03) A company has an overhead crane that has an estimated remaining life of 10 years.  The crane can be sold now
for $8,000.  If the crane is kept in service, it must be overhauled immediately at a cost of $4,000.  Operating and
maintenance costs will be $3,000 per year after the crane is overhauled.  The overhauled crane will have zero MV at
the end of the 10-year study period.  A new crane will cost $18,000, will last for 10 years, and will have a $4,000 MV
at that time.  Operating and maintenance costs are $1,000 per year for the new crane.  The company uses a before-
tax interest rate of 10% per year in evaluating investment alternatives.  Based on replacement analysis, the company
should overhaul the old crane.

Answer  True 

 False

2 points   

Question 2
 
(02) A company has an overhead crane that has an estimated remaining life of 10 years.  The crane can be sold now
for $8,000.  If the crane is kept in service, it must be overhauled immediately at a cost of $4,000.  Operating and
maintenance costs will be $3,000 per year after the crane is overhauled.  The overhauled crane will have zero MV at
the end of the 10-year study period.  A new crane will cost $18,000, will last for 10 years, and will have a $4,000 MV
at that time.  Operating and maintenance costs are $1,000 per year for the new crane.  The company uses a before-
tax interest rate of 10% per year in evaluating investment alternatives.  Calculate the AW of choosing the challenger. 
(HINT: enter numbers only; skip the $ symbol).
-3677.8
Answer

2 points   

Question 3
 
(01) A company has an overhead crane that has an estimated remaining life of 10 years.  The crane can be sold now
for $8,000.  If the crane is kept in service, it must be overhauled immediately at a cost of $4,000.  Operating and
maintenance costs will be $3,000 per year after the crane is overhauled.  The overhauled crane will have zero MV at
the end of the 10-year study period.  A new crane will cost $18,000, will last for 10 years, and will have a $4,000 MV
at that time.  Operating and maintenance costs are $1,000 per year for the new crane.  The company uses a before-
tax interest rate of 10% per year in evaluating investment alternatives.  Calculate the AW of choosing the defender. 
(HINT: enter numbers only; skip the $ symbol).
-4952.4
Answer

2 points   

Question 4
 
(2) Consider an asset that is 3 years old and has a remaining physical life of 2 years with the following projected cash
flows:
EOY   Revenue   Operating Cost   Salvage Value
4         $1,200      $800                    $300
 5         $1,100      $900                    $0
Assume that the asset may currently be sold for $600 and  that the before tax MARR is 10%.  What is the PW of
keeping the asset for two more years?  (HINT: enter numbers only; skip $ symbol).
-71.08
Answer

Question 5
 
(1) Consider an asset that is 3 years old and has a remaining physical life of 2 years with the following projected cash
flows:
EOY   Revenue   Operating Cost   Salvage Value
4         $1,200      $800                    $300
5         $1,100      $900                    $0
Assume that the asset may currently be sold for $600 and  that the before tax MARR is 10%.  What is the PW of
keeping the asset for one more year?  (HINT: enter numbers only; skip $ symbol).
36.37
Answer

Question 6
 
(3) Consider an asset that is 3 years old and has a remaining physical life of 2 years with the following projected cash
flows:
EOY   Revenue   Operating Cost   Salvage Value
4         $1,200      $800                    $300
5         $1,100      $900                    $0
Assume that the asset may currently be sold for $600 and  that the before tax MARR is 10%.  As an abandonment
problem, this asset should be kept for one more year.

Answer  True 

 False

2 points   

Question 7
 
Answer the question. 

A bin activator has an initial cost of $34,000 and a salvage value described by   where k is the number of years
since the bin activator was purchased. The net annual revenue is estimated by    The equipment will
have a maximum useful life of 5 years. If the company's MARR is 4% per year, fill in blanks below to correctly
represent the equation for calculating the EUAC at the end of year 3.
(HINT: skip $ and comma symbols)
 
P 6800 24100 F
EUAC3 = 34,000 (A/ , 4%, 3) -   -   (A/ , 4%, 3) -
F
(34,000 - 33,00*3)(A/ , 4%, 3)

5 points   
Question 8
 
Answer the question. 
A challenger asset with a maximum useful life of 6 years has a first cost of $43,000 and an estimated annual
operating cost of $6250. The market value is expected to decrease by $6450 each year for the next 6 years. If the
MARR is 10% per year, fill in blanks below to correctly represent the equation for calculating the EUAC at the end of
year 2.
(HINT: skip $ and comma symbols)
 
A P 6250
EUAC2 = 43,000 ( / , 10%, 2) +   - (43,000 - 6450*2) (
A F
/ ,10%,2)

5 points   

Question 9
 
Select all of the reasons that can lead to obsolescence in replacement analysis.  (Warning: wrong answers carry a
penalty).
Answer
a. Requirement alteration

b. Deterioration

c. Technological advancement

d. Physical impairment

5 points   

Question 10
 
01. Answer the question. 
Bruin Manufacturing is evaluating whether it should retain its current environmental test chamber and room or sell it
immediately and purchase a new one. The relevant costs are shown below. The current one can be kept for another
5 years, given that an additional maintenance cost of $500 each year is provided each year. Use a before-tax MARR
of 10% per year and the annual cost method. Calculate the EUAC of the Defender.
(HINT: skip $ and comma symbols)
 
Defender Challenger
 Capital investment, $ 3 years ago 33,000 -
 Capital investment, $ - 38,000
 Annual operating expenses, $ 5250 5450
 Annual maintenance, $ 500 -
 Current market value 13,000 -
 Estimated salvage value at the end
 of 5 additional years 1500 23,000
 8933.7
Answer

2 points   

Question 11
 
02. Answer the question. 
Bruin Manufacturing is evaluating whether it should retain its current environmental test chamber and room or sell it
immediately and purchase a new one. The relevant costs are shown below. The current one can be kept for another
5 years, given that an additional maintenance cost of $500 each year is provided each year. Use a before-tax MARR
of 10% per year and the annual cost method. Calculate the EUAC of the Challenger.
(HINT: skip $ and comma symbols)
 
Defender Challenger
 Capital investment, $ 3 years ago 33,000 -
 Capital investment, $ - 38,000
 Annual operating expenses, $ 5250 5450
 Annual maintenance, $ 500 -
 Current market value 13,000 -
 Estimated salvage value at the end
 of 5 additional years 1500 23,000
11707
Answer

2 points   

Question 12
 
03. Answer the question. 
Bruin Manufacturing is evaluating whether it should retain its current environmental test chamber and room or sell it
immediately and purchase a new one. The relevant costs are shown below. The current one can be kept for another
5 years, given that an additional maintenance cost of $500 each year is provided each year. Use a before-tax MARR
of 10% per year and the annual cost method. The EUAC of the defender is less than the EUAC of the challenger; the
current equipment should be retained for now.
 
Defender Challenger
 Capital investment, $ 3 years ago 33,000 -
 Capital investment, $ - 38,000
 Annual operating expenses, $ 5250 5450
 Annual maintenance, $ 500 -
 Current market value 13,000 -
 Estimated salvage value at the end
 of 5 additional years 1500 23,000

Answer  True 

 False
 2 points   

Question 13
 
Answer the question. 

A bin activator has an initial cost of $34,000 and a salvage value described by   where k is the number of years
since the bin activator was purchased. The net annual revenue is estimated by    The equipment will
have a maximum useful life of 5 years. If the company's MARR is 4% per year, the equation below correctly
represent for calculating the EUAC at the end of year 2.
 
EUAC2 = 34,000 (A/P, 4%, 2) - (5600 + 600*2) - (34,000 - 3,300*2)(A/F, 4%, 2)

Answer  True 

 False

2 points   

Question 14
 
Answer the question. 
Yellowjacket, Inc., a large textile company, is trying to decide how long it should retain one of its machines used in
the sludge dewatering processes. The machine currently is estimated to have a $35,000 market value and a future
market value of $18,000 next year, decreasing $1700 per year over its remaining maximum useful life of 8 years. The
operating cost is expected to be $5500 next year, increasing by $450 each year thereafter. If the company's MARR is
15% per year, the equation below correctly represent for calculating the EUAC of this asset at the end of year 1.
 
EUAC1 = 35,000 (A/P, 15%, 1) + 5500 - 18,000 (A/F,15%,1)

Answer  True 

 False

2 points   

Question 15
 
A minimum EUAC of $15,430 is attained for the challenger at its economic life of 5 years.  If the defender's total
marginal cost in each year is shown below, then the defender should be be kept [x] more year(s) before replacement.
Year   Defender Total Marginal Cost
1        $13,250
2        $14,600
3        $15,950
4        $17,300
5        $18,650
2
Answer
 2 points   

Question 16
 
A new piece of production machinery has  the following costs:
Investment cost = $25,000
Annual operating and maintenance cost = $2000 in year 1 and then increasing by $500 per year
Annual cost for risk of breakdown = $5000 per year for 3 years, then increasing by $1500 per year
Useful life = 7 years
MARR = 15%
Market Value:
EOY  MV
1       $18,000
2       $13,000
3       $ 9,000
4       $ 6,000
5       $ 4,000
6       $ 3,000
7       $ 2,500

2000 900
For year = 5, calculate the loss in market value  , cost of capital  , O&M
4000 8000 14900
cost  , Breakdown risk cost  , and total marginal cost  .
(HINT: enter numbers only, skip commas and $ symbols).

10 points   

Question 17
 
Answer the question. 
Aztec, a manufacturer of hard board and fiber cement sidings and panels, purchased equipment for its new product
line 9 years ago at a cost of $43,000. The asset has a market value of $17,700, if it were sold now. The current asset
is expected to provide adequate services for another 3 years, given that the annual maintenance costs of $7250 is
provided. It is estimated that, if the current asset is continued in service, its final market value will be $9600 three
years from now. However, due to changing customer needs, a new piece of machinery is being considered for the
product line. The company can purchase the new equipment at a cost of $55,903 and a $540 salvage value at the
end of 15-year economic life. The new equipment has annual maintenance costs of $5250. The SL method with a 15-
years life and zero market value is used to write off both assets. Calculate the AW for the Challenger based on an
after-tax annual worth analysis with an effective tax rate of 38% and an after-tax MARR of 2% per year.
(HINT: skip $ and comma symbols)
-3635.856
Answer

3 points   

Question 18
 
 Answer the question. 

A challenger asset with a maximum useful life of 6 years has a first cost of $43,803 and an estimated annual
operating cost of $6250. The market value is expected to decrease by $6450 each year for the next 6 years. If the
MARR is 10% per year, calculate the EUAC at the end of year 6 of this asset.

(HINT: skip $ and comma symbols)

15645.82
Answer

3 points   

    Question 18 of 18
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