‘Management and Humantles Departme: Universit Teknologi PETRONAS ASSG ZG#2: CH11 Note «Tha kaedliie. « hod arnpaneed 6 ow 19% @ Spm. Subnet « REPLACEMENT AND RETENTIOw DECIS/ ONS 205 antipromend te AP. Dr. Collec Gayot" btock 31-03-29 (lefev beg). @ Ths vs app aanprmet « Mari fre. Tre fame Sop menbers prox spi fave ptr ASSG EGK/ | © Show yous Calechoben: Lambe . Aasriew ALL Quesleis . ADDITIONAL PROBLEMS AND FE EXAM REVIEW QUESTIONS 11.47 Incondueting a replacement study, all of the follow- ing are correct viewpoints for the analyst except: (a) Consultant's (b) Owner's (©) Outside's (d) Nonowner's 11.48. A sunk cost is the difference between: (a) The first cost and the salvage value (b) The market value and the salvage value (©). The first cost and the market value (d) The book value and the market value 11.49 A truck was purchased 3 years ago for $45,000 and can be sold today for $24,000, The operating costs are $9000 per year, and it is expected to last 4 more years with a $5000 salvage value, A new truck, 11.50 ‘which will perform that same serviee, ean be pur- chased for $50,000, and it will have a life of 10 years with operating costs of $28,000 per year and a $10,000 salvage value, The value that should tbe use! as P for the presently owned vehicle in replacoment study is: (a) $45,000 ($5000 (©) $50,000 (a) $24,000 ‘The economic service life of an asset with the PW and AW values on the next page is: (@) year (b) 2 years fo) 3 years (a) years PG 1/2ae Te 41.53 “chapter tt nad ant eps 1 Vea Present Worth Ht Kept Yoo. $ Sear 15.55 17.000 28,686 = 16.886 45.019 1s 162 51.655 16.88 ~T861 -120 In looking for ways to cut costs and increase profit (lo make the company’s stock Bo up). one Of the company’s industrial engineers (UES) de- termined that the equivalent annual worth of an existing machine over its remaining useful life of 3 years will be $-70,000 per year, The so ‘dotermined that x replacement with more ad. vvaneed features will have an AW of $80,000 per yar if it is kept for 2 years or less, $~75,000 iF it is kept hetwoen 3 and 4 years, and $~65,000 if is kept for $ to 10 years. IF the engivecr uses a S-year study period aad an interest vaie of 15% por year, she should recommen! that the existing machine be: G@ Replaced paw’ (Replaced | ysar fram uo (© Replaced 2 yours Irom How (@ Notreploced ‘The equivalent annual worth of unt existing m- chine ut American Semiconductor is estimated t0 ‘be $70,000 per year over its remaining useful life of 3 years. It ean be replaced now or later with a machine that will have an AW of $-90,000 per year if itis kept for 2 years or less, ~$65,000 if it is kept between 3 and 5 years, and $110,000 if it is kept for 6 to 8 years. The company wants an analysis of what i should do for a 3-year study period at an interest rate of 15% per year. The re placement must be made now or 3 years from now, according to the department supervisor. You should recommend that the existing machine be replaced (a) Now {b) J year frow now fo) 2 years fram now Gd) Can't tell, must find AW of different reten- tion combinations for the (wo machines “Phe ovst characteristics of a CO testing machine at Dyan Instruments are shown below, The cost of a new tester is $100,000. The equation for determin- ing the AW of keeping the tester for 2 year is (a) AW = —100,000(4/Pi.8) ~ 142,000€P/R.1) “+ 47,000P /RiDA/PAS) + 40,000(4/8:8) (b) AW = —100,000(4/Ri.2) ~ (42,0000 /Fin1) + 47,000(P/Ri,2)(A/PI.2) + 40,000(4/F.2) 1ns4 195 Replacement and Retention De fe) AW = ~100,00064/Ri.2) 47,000 40,0004 78,2) (a) AW = ~100,000(A/Ai.2) ~ 42,000 ++ 40,0004 /Fi.2) Machine age, MRO Costs, Salvage Value Spervoar —_at End of Year, $ 0,000 40,000 31,000 24,000 . 15,000 54,000 10,000 7 63,000 10,000 8 67.000 10,000 ‘An engineer with Haliburton calculated the AW values shown for a presently owned machine by using estimates he obtained from the vendor and company records fowwnion AW Value, 700 “ston ‘A challenger has an economic servise life of 77 years with an AW of $86,000 per year. Assume that used machines like the one presently owned will always be available and that the MARR is 12% per year. If all future costs remain as esti- mated for the analysis, the company should pur- ‘chase the challenger: (a) Now (0) Afier2 years: (©) After 3 years (Never ‘The annua worth valuss for a defender, which ean be replaced with a similar used asset, and a chal- lenger are estimated. The defender should be re- placed: (2) Now (1 ysar from now (©), 2 years from now (a) 3 years from now dumber af AW Value, $ par Your Years Retained Defender Challenger 1 = 14,000 2,000 2 =13,700 = 18,000 3 16,900 13,100 4 17,000 15,600 3 38,000 17,500 PG 2/2.