An entrepreneurial civil engineer who owns his own design/build company purchase
ID: 1116471 • Letter: A
Question
An entrepreneurial civil engineer who owns his own design/build company purchased a small crane 2 years ago at a cost of $71,000. At that time, it was expected to be used for 10 years with an annual cost of $15,000 per year and then traded in for its salvage value of $10,000. Due to increased construction activities, the company would prefer to trade for a new, larger crane now which will cost $93,000. The company estimates that the old crane can be used, if necessary, for another 4 years, at which time it will have a $25,000 estimated market value. Its current market value is estimated to be $39,000, and if it is used for another 4 years, it will have M&O costs (exclusive of operator costs) of $17,000 per year. Determine the annual worth of the presentlyowned crane if a replacement analysis is performed today and the company’s MARR is 10% per year.
(a) $-27,0248 (b) $-26,329 (c) $-25,927 (d) $-24,917 (e) $-23,917
Explanation / Answer
Annual worth of the present crane = -39000(A/P, 10%, 4) - 17000 + 25000(A/F, 10%, 4)
= -39000*0.3155 - 17000 + 25000*0.2155 = -23917
Hence the current choice is option e).