Lec%2036_Full0

# Lec%2036_Full0 - IE 343 Engineering Economics Lecture 36...

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IE 343 Engineering Economics Lecture 36: Chapter 9 – Replacement Analysis Instructor: Tian Ni Nov.28, 2011 IE 343 Fall 2011 1

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• Quiz 8 will be given at the beginning of the class 4:30PM – 4:50PM on Wednesday Nov.30 • Quiz 8 will have 3 problems totally 10 points • You will have 20 minutes to finish quiz 8 • Please bring a CALCULATOR to the quiz • All quiz 8 problems will be selected from the following TWO sources. You will see the same problems but maybe with numbers changed IE 343 Fall 2011 Tips for Quiz 8 2
1. Examples on Lecture Notes Lec 31_Full: Example 8.1 Lec 32_Full: Example 8.2, 8.3, 8.4** Lec 34_Full: Example 8.5, 8.6** 2. Examples on Textbook Chapter 8: Example 8.1, 8.2, 8.3, 8.4, 8.5*, 8.7**, 8.8**, 8.9 IE 343 Fall 2011 Tips for Quiz 8 3

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IE 343 Fall 2011 Determining Economic Life ) %, , / ( ) %, , / ( 1 j i F P E k i F P MV I PW k j j k k = + = Present Worth of total costs through year k is The total marginal cost for each year k ( TC k )is 4 ) %, , / )( ( 1 k i P F PW PW TC k k k = k k k k k E iMV MV MV i TC + + = 1 1 %) (
IE 343 Fall 2011 Determining Economic Life Finally, we can determine the EUAC through year k to determine the economic life N C * ) %, , / ( ) %, , / ( 1 k i P A j i F P TC EUAC k j j k = = 5

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Determining the Economic Life of an Existing Asset (Defender) IE 343 Fall 2011 6
IE 343 Fall 2011 Example 9.4 Two years ago, an electronics firm made a \$70,000 investment in a new assembly line machine. This year, new international industry standards will require a \$16,000 upgrade. Also there is a new machine which is challenging the retention of the two-year-old machine. At MARR = 10%, and the estimates below, perform a replacement study this year and each year in the future, if needed. 7

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IE 343 Fall 2011 Example 9.4 Defender: First Cost : \$15,000 Future MVs : decreasing by 20% per year Estimated Retention Period : no more than 3 years Annual Operating Cost Estimates : \$4,000 per year, increasing by \$4,000 per year thereafter 8
IE 343 Fall 2011 Example 9.4 Challenger: First Cost : \$50,000 Future MVs : decreasing by 20% per year Estimated Retention Period : no more than 5 years Annual Operating Cost Estimates : \$5,000 in year 1, increasing by \$2,000 per year thereafter 9

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IE 343 Fall 2011 Example 9.4 DEFENDER Year j MVj Annual Expenses 0 15000 1 12000 20000 2 9600 8000 3 7680 12000 CHALLENGER Year j MVj Annual Expenses 0 50000 1 40000 5000 2 32000 7000 3 25600 9000 4 20480 11000 5 16384 13000 10
IE 343 Fall 2011 Example 9.4 – Defender Year j MVj Ej MV Loss(j) Cost of Capital i=10% Total Marginal Cost(TCj) TCj(P/F,i,j) Σ TCj(P/F,i,j) EUACj 0 15000 1 12000 20000 3000 1500 24500 22273 22273 24500 2 9600 8000 2400 1200 11600 9587 31860 18357 3 7680 12000 1920 960 14880 11180 43039 17307 Economic Life of the Defender is 3 years Minimum EUAC = 17307 11

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IE 343 Fall 2011 Example 9.4 – Challenger Economic Life
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## This note was uploaded on 01/28/2012 for the course IE 343 taught by Professor Vincent,g during the Winter '08 term at Purdue.

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Lec%2036_Full0 - IE 343 Engineering Economics Lecture 36...

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