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CEE 201 Homework Handout 2, Spring 2008. Due Jan. 29, 2008
Note: This assignment is easier using spreadsheet software
1.
An engineering construction firm is considering the purchase of a new crane. Two
models are being considered, both of which are considered to perform adequately.
Hence the decision boils down to which one has the lowest overall cost.
The firm
uses a discount rate of 8% per year for decisions of this type. The table below
summarizes cost data for the two models. Monetary amounts are in thousands of
US dollars.
Model
Initial Cost
Life, years
Salvage value
Manitowoc
550
40/yr
25
50
450
55/yr
15
20
a. Draw a cash flow diagram for each of the two cranes.
b. Determine the best crane based on EUAC. Show your work thoroughly.
Justify your choice. Calculate the cost ratio of the two cranes.
c. Using present value analysis, calculate the present value of the cost of each
crane for its life.
Calculate the cost ratio of the two cranes. Compare what these
results indicate about the “best” crane relative to the results in Part b. State what,
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 Spring '08
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