any expert in Economics?

CSUF – Fall 2015 HW #4 Name: ______________________ EG-ME401 – Spring 2016 DUE 5/10/16 ______________________ ______________________

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Five problems in the textbook, 20 pt. each. Credit for correct detail answers only.

Problem 13-9 – In this problem you are to determine when the existing drill press (the defender) purchased two years ago for

$40,000 should be replaced by the new drill press (the challenger) having the uniform annual cost (UAC) of $7000. The yearly

cost data for the defender are available in the problem and tabulated in the table in part (a). Solve this problem by completing the

marginal cost table and answer questions below.

a) Complete the marginal cost table of the defender below (ref. Example 13-3 and 13-4)

YEAR MARKET VALUE (MV)

MARGINAL COSTS FOR YEAR n If equip. is kept to year n

LOST IN MV

INTEREST ON MV

O & M COSTS

TOTAL MARGINAL

COSTS

PWC Marginal

Costs

EUAC Marginal

Costs

0 (Now) $15,000

1 $12,000 $3,000 $1,500 $2,700 $7,200 $6,545 $7,200

2 $10,000 $2,000 $2,900

3 $8,000 $2,000 $3,300

4 $6,000 $2,000 $3,700

5 $4,000 $2,000 $4,200

6 $2,000 $2,000 $4,700

b) Is the total marginal cost increasing or decreasing?

c) What replacement analysis technique can be used in this case?

d) When should the drill press be replaced with the new drill press having EUAC of $7000?

Problem 13-10 – Complete the table below to confirm $17,240 is the minimum UAC if the machine is kept to year 4.

YEAR CASH FLOW If equip is kept to year n

n Equip. Cost

SV = MARKET VALUE

Maintenance PW to year n

EUAC To year n

0 -$50,000

1 $40,000 -$3,500

2 $32,000 -$5,500

3 $25,600 -$7,500

4 $20,480 -$9,500 -$17,240

5 $16,384 -$11,500

6 $13,107 -$13,500

EGME-401 HW #4

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Problem 13-23 – Complete the table below and determine the economic life of the pipe:____________ years.

YEAR MARKET VALUE (MV)

MARGINAL COST FOR YEAR n If equip. is kept to year n

LOST IN MV

INTEREST ON MV

O & M COSTS

TOTAL MARGINAL

COSTS

PWC Marginal

Costs

EUAC Marginal

Costs

0 $25 $0

1 $0 -$25 -$4 -$8.50 -$37.25 -$32.39 -$37.25

2 $0 $0 $0 -$14.50

3 $0 $0 $0 -$20.50

4 $0 $0 $0 -$26.50

5 $0 $0 $0 -$32.50

Problem 13-50 – Complete the tables below to determine the after-tax costs of keeping the old folklift and the new folklift. Should

the company kept the old folklift for the present or replace it now with the new one?________________

KEEP OLD FOLKLIFT

YEAR BTCF SL

Depr. TI

Income Tax @ 40%

ATCF EUAC if kept to year n

0 $0

1 -$400 $0

2 -$600 $0

3 -$800 $0

4 -$1,000 $0

5 -$1,400 $0

6 -$1,400 $0 -$1,400 $560 -$840 -$531

7 -$1,400 $0 -$1,400 $560 -$840 -$565

8 -$1,400 $0 -$1,400 $560 -$840 -$591

9 -$1,400 $0 -$1,400 $560 -$840 -$611

10 -$1,400 $0 -$1,400 $560 -$840 -$627

BUY NEW FORKLIFT

YEAR BTCF SL

Depr. TI

Income Tax @ 40%

ATCF EUAC if kept to year n

0 -$6,500 -$6,500

1 -$50 $650 -$700 $280 $230 -$6,790

2 -$50 $650 -$700 $280 $230 -$3,415

3 -$50 $650 -$700 $280 $230 -$2,292

4 -$50 $650 -$700 $280 $230 -$1,732

5 -$50 $650

6 -$50 $650

7 -$50 $650

8 -$50 $650

9 -$50 $650

10 -$50 $650

EGME-401 HW #4

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Problem 14-23

1) In the table below, calculate yearly inflation rate and the average inflation rate for the last 5 years.

Years ago

Average Home Price

Inflation Rate

5 $265,000

4 $267,000

3 $272,000

2 $280,000

1 $283,000

0 $288,000

Average =

2) What is your estimate of the inflation rate for next year?___________________