Lec%2039_Full - IE 343 Engineering Economics Lecture 39:...

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Unformatted text preview: IE 343 Engineering Economics Lecture 39: Review Chapter 1-9, Review Problems Instructor: Tian Ni Dec.5, 2011 IE 343 Fall 2011 1 Quiz 9 will be given at the beginning of the class 4:30PM 4:45PM on Wednesday Dec.7 Quiz 9 will have 2 problems totally 10 points You will have 15 minutes to finish quiz 9 Please bring a CALCULATOR to the quiz All quiz 9 problems will be selected from the Lecture Notes Examples Lec 35_Full Lec 38_Full: Example 9.1 9.13. Quiz 9 is optional for students to makeup points IE 343 Fall 2011 Tips for Quiz 9 2 Chapter 9 Replacement Analysis IE 343 Fall 2011 3 IE 343 Fall 2011 Example 9.13 Defender 4 Existing Pump A (defender)- Capital investment when purchased 5 years ago: $17,000 Useful life: Another 9 years Depreciation: MACRS(ADS) over 9 yrs Annual Expenses Replacement of impeller and bearings $1,750 Operating and maintenance $3,250 Taxes and insurance ($17,000 x 2%) $340 Total Annual Expenses $5,340 Present Market Value $750 Estimated Market Value at the end of 9 years $200 Current Book Value $8500 IE 343 Fall 2011 Example 9.13 Challenger 5 Replacement Pump B (challenger)- Capital investment: $16,000 Useful life: 9 years Depreciation: MACRS(GDS) over 5-year Annual Expenses Operating and maintenance $3,000 Taxes and insurance ($16,000 x 2%) $320 Total Annual Expenses $3,320 Present Market Value $16,000 Estimated Market Value at the end of 9 years $3,200 Effective income tax rate 40% MARR (before taxes) 10% MARR (after taxes) 6% IE 343 Fall 2011 Example 9.13 Data Known After-Tax MARR = 6.00% Effective Income Tax Rate = 40.00% Useful Life = 9 years Existing Pump A(defender) MARCS(ADS) recovery period 9 years Capital investment when purchased five years ago 17,000 Total annual expenses 5340 Present MV 750 Estimated market value at the end of nine additional years 200 Replacement Pump B(Challenger) MARCS(GDS) property class 5 years Capital investment 16,000 Total annual expenses 3,320 Estimated MV at the end of nine years 3,200 6 IE 343 Fall 2011 Example 9.13 Solution Before-Tax Analysis If invest Defender : Present Market Value = $750 Estimated MV at EOY 9 = $200 Total Annual Expenses = $5,340 Net Annual Costs of the Defender over 9 years = $750(A/P, 10%, 9) - $200(A/F, 10%, 9) + $5,340 = $5,455 7 IE 343 Fall 2011 Example 9.13 Solution Before-Tax Analysis If invest Challenger : Capital Investment = $16,000 Estimated MV at EOY 9 = $3,200 Total Annual Expenses = $3,320 Net Annual Costs of the Challenger over 9 years = $16,000(A/P, 10%, 9) - $3,200(A/F, 10%, 9) + $3,320 = $5,862 8 IE 343 Fall 2011 Example 9.13 Solution Before-Tax Analysis So if we do not consider the income tax, and have to choose between the Pump A(Defender) and Pump B(Challenger), we will choose Pump A(Defender) 9 IE 343 Fall 2011 Example 9.13 Solution After-Tax Analysis(Defender) If the Defender is invested: BTCF = Present MV = -$750...
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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 University-West Lafayette.

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Lec%2039_Full - IE 343 Engineering Economics Lecture 39:...

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