Chatham Automotive purchased new electric forklifts to move steel automobile par
ID: 2783354 • Letter: C
Question
Chatham Automotive purchased new electric forklifts to move steel automobile parts two years ago. These cost $75 000 each, including the charging stand. In practice, it was found that they did not hold a charge as long as claimed by the manufacturer, so operting cools are very high. This also results in their curenty having a salvage value of about $10 000. Chatham is considering replacing them with propane models. The new ones cost $58000. After one year, they have a salvage value of $40 000, and thereafter decline in value at a declining-balance depreciation rate of 20 percent, as does the electric model from this time on. The MARR is 8 percent. Operating costs for the electric model are $20 000 over the first year, rising by 12 percent per year. Operating costs for the propane model will initially be $10 000 over the first year, rising by 12 percent per year. Should Chatham Automotive replace the forklifts now?Explanation / Answer
The above question gives that It should not replace the Automotive with the forklifts as the new one has higher depreciation value and the salvage cost which might affect them and also the operating cost for purchasing a new car is also high. So Chatham should not be replaced Automotive with the forklift.