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A firm is concerned about the condition of someof its

Engineering Economic Analysis | 12th Edition | ISBN: 9780199339273 | Authors: Donald G. Newnan; Jerome P. Lavelle; Ted G. Eschenbach ISBN: 9780199339273 93

Solution for problem 13-54 Chapter 13

Engineering Economic Analysis | 12th Edition

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Engineering Economic Analysis | 12th Edition | ISBN: 9780199339273 | Authors: Donald G. Newnan; Jerome P. Lavelle; Ted G. Eschenbach

Engineering Economic Analysis | 12th Edition

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Problem 13-54

A firm is concerned about the condition of someof its plant machinery. Bill James, a newly hiredengineer, reviewed the situation and identified fivefeasible, mutually exclusive alternatives.Alternative A:Spend $44,000 now repairingvarious items. The $44,000 can be charged as acurrent operating expense (rather than capital-ized) and deducted from other taxable incomeimmediately. These repairs will keep the plantfunctioning for 7 years with current operatingcosts. Alternative B:Spend $49,000 to buygeneral-purpose equipment. Depreciationwould be straight line over the equipments7-year useful life. The equipment has no sal- vage value. The new equipment will reduceannual operating costs by $6000.Alternative C:Spend $56,000 to buy newspecialized equipment. This equipment wouldbe depreciated by sum-of-years- digits depre-ciation over its 7-year useful life. Thisequipment would reduce annual operatingcosts by $12,000. It will have no salvagevalue.Alternative D:This alternative is the same asAlternativeB, except it reduces annual operat-ing costs by $7000.Alternative E:This is the do nothingalternative, with annual operating costs $8000above the present level.This profitable firm pays 40% corporate incometaxes and uses a 10% after-tax rate of return. Whichalternative should the firm adopt?

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Chapter 13, Problem 13-54 is Solved
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Textbook: Engineering Economic Analysis
Edition: 12
Author: Donald G. Newnan; Jerome P. Lavelle; Ted G. Eschenbach
ISBN: 9780199339273

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