MIME 2600 – Engineering Economics
Name: ______________________________
Midterm Exam 3
(100 Points)
November 15, 2006
All problems assume compounding interest.
Show all work to receive full or partial credit.
Problem #1 (35 points)
Your company is interested in purchasing a new rolling press to use in the factory.
Two different
models are available to satisfy your current production requirements.
Model A:
This model costs $200,000 and requires annual maintenance expenses of
$5,000.
The machine has a service life of 7 years and a salvage value of
$30,000 at the end of its life.
Model B:
This model costs $150,000 and requires annual maintenance expenses of
$10,000.
The machine has a service life of 7 years and a salvage value of
$25,000 at the end of its life.
(a) Determine the annual equivalence cost of each model assuming MARR = 10%.
Model A:
AE = ($200,000$30,000)(A/P,10%,7) + 0.10($30,000) + $5,000
= $42,918
Model B:
AE = ($150,000$25,000)(A/P,10%,7) + 0.10($25,000) + $10,000
= $38,175
(b) Determine the unit cost per sheet assuming the press runs 10,000 sheets per year.
Model A:
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 Spring '08
 Lewandowski
 Depreciation, salvage value, MARR

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