An entrepreneurial civil engineer who owns his own design/build... 9. An entrepr
ID: 2796408 • Letter: A
Question
An entrepreneurial civil engineer who owns his own design/build...
9. 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 S93.000. The company estimates that the old crane can be used, if necessary, for another 4 years, at which time it will have a S25,000 estimated market value. Its current market value is estimated to be S39,000, 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 presently- owned crane if a replacement analysis is performed today and the company's MARR is 10% per year (a) S-27,0248 (b) S-26,329 (c) S-25,927(d) S-24,917(e) S-23,917Explanation / Answer
Option e. -23917 is correct as it is an outflow
Opportunity cost of lost market value today is considered as initial investment
Year 0 Year 1 Year 2 Year 3 Year 4 Initial investment 39,000 Annual cash flows 17,000 17,000 17,000 17,000 Salvage value (25,000) Net cash flow 39,000 17,000 17,000 17,000 (8,000) Discount rate@ 10.00% 1.0000 0.9091 0.8264 0.7513 0.6830 Present value 39,000 15,455 14,050 12,772 (5,464) NPV(total present value) a 75,812 Annuity factor(4years,10%) b 3.1699 AW c=a/b 23,917