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Unformatted text preview: Chapter 13: Replacement Analysis 13-1 For the Replacement Analysis Decision Map, the appropriate analysis method is a function of the cash flows and assumptions made regarding the defender and challenger assets. Thus, the answer would be the last it depends on the data and the assumptions 13-2 The replacement decision is a function of both the defender and the challenger. The statement is false. 13-3 The book value of the equipment describes past actions or a sunk cost situation. The answer is the last it should be ignored in this before-tax analysis. 13-4 With no resale value, and maintenance costs that are expected to be higher in the future, EUAC would be a minimum for one year. (This is such a common situation that the early versions of the MAPI replacement analysis model were based on a one year remaining life for the defender.) The answer is one year. 13-5 The EUAC of installed cost will decline as the service life increases. The EUAC of maintenance is constant. Thus total EUAC is declining over time. Answer: For minimum EUAC, keep the bottling machine indefinitely. 13-6 The value to use is the present market value of the defender equipment. (The book indicates that trade-in value may be purposely inflated as a selling strategy, hence it may or may not represent market value.) 13-7 (a) Expected good performance, productivity, energy efficiency, safety, long service life. Retraining in operation and maintenance may be required. High comfort of operation. High purchase price. May not be immediately available. Sales taxes to be paid. Can be depreciated. Supplier warranty and spare parts backup available. (b) All as in (a) except for lower price and probably faster delivery. (c) All as in (a) except for still lower cost, lost production during the rebuild period, and that the rebuild costs can be expensed, at least partially. No sales tax applies. (d) Performance and productivity may not be as good as in option (c). Retraining in operation and maintenance is not required. Production will be lost during the rebuilding period. Cost may be substantially lower than in previous options. The rebuild costs can be expensed. No sales tax applies. (e) Performance, productivity, service life, energy efficiency, safety, reliability may be significantly lower than in the other options. Retraining in operation and maintenance may be required if the new unit is different from the previous one. Cost may be only 20-50% of the new equipment. Immediate delivery is a possibility. The sales tax applies. Equipment can be depreciated. 13-8 Looking at Figure 13-1: For this problem marginal cost data is available, and is not strictly increasing. This would lead to the use of Replacement Analysis Technique #2. In this case we compute the minimum cost life of the defender and compare the EUAC at that life against the EUAC of the best available challenger. We chose the options with the smallest EUAC....
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This note was uploaded on 08/13/2010 for the course IME IME 314 taught by Professor Freeman during the Spring '10 term at Cal Poly.
- Spring '10