Question

A civil engineer who owns his own design/build/operate company purchased a small crane 3 years ago at a cost of $65,000. At that time, it was expected to be used for 10 years and then traded in for its salvage value of $10,000. Due to increased construction activities, the company would prefer to trade for a new, larger crane now, which will cost $80,000. The company estimates that the old crane can be used, if necessary, for another 3 years, at which time it would have a $18,000 estimated market value. Its current market value is estimated to be $31,000, and if it is used for another 3 years, it will have M&O costs (exclusive of operator costs) of $21,000 per year. Determine the values of P, n, S and AOC that should be used for the existing crane in a replacement analysis.
a. The value of P is $_________
b. The value of n is_________
c. The value of S is $__________
d. The AOC value is $ __________per year.

Answer 1

Answer and Explanation:

The computation is shown below:

a. The value of P is $31,000 i.e. equivalent to the estimated value of the current market value

b. The value of n is 3 years

c, The value of S is $18,000 i.e. equivalent to the estimated value of the market

d. The AOC value is $21,000 per year i.e. equivalent to the M&O cost