ECON
Session 9 ch11 class (1).ppt

# Convex function of the number of years the equipment

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convex function of the number of years the equipment is used. Under certain conditions, the optimum replacement interval can be determined, i.e., the frequency of replacements that will minimize EUAC.

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Principles of Engineering Economic Analysis , 5th edition Optimum Replacement
Principles of Engineering Economic Analysis , 5th edition Example 11.18 a) A medium-sized industrial grade compressor can be purchased for \$10,000. Its salvage value will be negligible, regardless of how long it is used. Annual O&M costs are expected to increase \$1,500/yr, with a 1 st year O&M cost of \$2,500. Based on a 15% MARR , how frequently should the compressor be replaced?

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Principles of Engineering Economic Analysis , 5th edition Example 11.18 a) A medium-sized industrial grade compressor can be purchased for \$10,000. Its salvage value will be negligible, regardless of how long it is used. Annual O&M costs are expected to increase \$1,500/yr, with a 1 st year O&M cost of \$2,500. Based on a 15% MARR , how frequently should the compressor be replaced?
Principles of Engineering Economic Analysis , 5th edition Example 11.18 (Continued) b) Now, suppose annual O&M costs increase \$2,500/yr, with a 1 st year O&M cost of \$2,500. Based on a 15% MARR , how frequently should the compressor be replaced?

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Principles of Engineering Economic Analysis , 5th edition Example 11.18 (Continued) c) Now, suppose annual O&M costs increase \$2,500/yr, with a 1 st year O&M cost of \$2,500 and the initial cost of the compressor increases from \$10,000 to \$20,000. Based on a 15% MARR , how frequently should the compressor be replaced?
Principles of Engineering Economic Analysis , 5th edition Example 11.18 (Continued) d) Now, suppose annual O&M costs increase \$2,500/yr, with a 1 st year O&M cost of \$2,500, the initial cost of the compressor is \$20,000, and the MARR is decreased to 1.5%. How frequently should the compressor be replaced?

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Principles of Engineering Economic Analysis , 5th edition Example 11.18 (Continued) e) Now, suppose the compressor costs \$10,000; annual O&M costs increase 10%/yr, with a 1 st year O&M cost of \$2,500; and salvage value is a decreasing geometric series, with a decrease of 20%/yr, i.e., the salvage value after 1-yr of use is \$8,000, after 2 yrs use is \$6,400, … Using a 15% MARR , how frequently should the compressor be replaced?
Principles of Engineering Economic Analysis , 5th edition n* = 4 yrs P = \$10,000 SV = \$0 O&M 1 = \$2,500 G = \$1,500 MARR = 15%

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Principles of Engineering Economic Analysis , 5th edition Example 11.18 (Continued) b) Now, suppose annual O&M costs increase \$2,500/yr, with a 1 st year O&M cost of \$2,500. Based on a 15% MARR , how frequently should the compressor be replaced?
Principles of Engineering Economic Analysis , 5th edition n* = 3 yrs P = \$10,000 SV = \$0 O&M 1 = \$2,500 G = \$2,500 MARR = 15%

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Principles of Engineering Economic Analysis , 5th edition Example 11.18 (Continued) c) Now, suppose annual O&M costs increase \$2,500/yr, with a 1 st year O&M cost of \$2,500 and the initial cost of the compressor increases from \$10,000 to \$20,000. Based on a 15% MARR , how frequently should the compressor be replaced?
Principles of Engineering Economic Analysis , 5th edition n* = 5 yrs P = \$20,000 SV = \$0 O&M 1 = \$2,500 G = \$2,500 MARR = 15%

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Principles of Engineering Economic Analysis , 5th edition Example 11.18 (Continued) d)
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• Fall '17
• Mike Heny
• Economics, Generally Accepted Accounting Principles, Replacements

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