2. As the supervisor of a facilities engineering department, you consider mobile cranes to be critical equipment. The purchase of a new medium-sized, truck-mounted crane is being evaluated. The economic estimates for the two best alternatives are shown in the following table. Capital investment Annual expenses" Useful life (years) Market value (at end of life) Alternatives A B $272,000 $346,000 28,800 19,300 6 $25,000 $40,000 "Excludes the cost of an operator, which is the same for both alternatives. You have selected the longest useful life (nine years) for the study period and would lease a crane

Power System Analysis and Design (MindTap Course List)
6th Edition
ISBN:9781305632134
Author:J. Duncan Glover, Thomas Overbye, Mulukutla S. Sarma
Publisher:J. Duncan Glover, Thomas Overbye, Mulukutla S. Sarma
Chapter6: Power Flows
Section: Chapter Questions
Problem 6.43P
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2. As the supervisor of a facilities engineering department, you consider mobile cranes to be critical
equipment. The purchase of a new medium-sized, truck-mounted crane is being evaluated. The
economic estimates for the two best alternatives are shown in the following table.
Alternatives
A
B
$272,000 $346,000
Capital investment
Annual expenses"
Useful life (years)
28,800
19,300
6
9
Market value (at end of life) $25,000
$40,000
"Excludes the cost of an operator, which is the same for
both alternatives.
You have selected the longest useful life (nine years) for the study period and would lease a crane
for the final three years under Alternative A. On the basis of previous experience, the estimated
annual leasing cost at that time will be $66,000 per year (plus the annual expenses of $28,800 per
year). The MARR is 15% per year. Show that the same selection is made with
a. the PW method.
b.
the IRR method.
c. the ERR method.
d. Would leasing crane A for nine years, assuming the same costs per year as for three
years, be preferred over your present selection? (E = MARR = 15%).
Transcribed Image Text:2. As the supervisor of a facilities engineering department, you consider mobile cranes to be critical equipment. The purchase of a new medium-sized, truck-mounted crane is being evaluated. The economic estimates for the two best alternatives are shown in the following table. Alternatives A B $272,000 $346,000 Capital investment Annual expenses" Useful life (years) 28,800 19,300 6 9 Market value (at end of life) $25,000 $40,000 "Excludes the cost of an operator, which is the same for both alternatives. You have selected the longest useful life (nine years) for the study period and would lease a crane for the final three years under Alternative A. On the basis of previous experience, the estimated annual leasing cost at that time will be $66,000 per year (plus the annual expenses of $28,800 per year). The MARR is 15% per year. Show that the same selection is made with a. the PW method. b. the IRR method. c. the ERR method. d. Would leasing crane A for nine years, assuming the same costs per year as for three years, be preferred over your present selection? (E = MARR = 15%).
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