A specialty concrete mixer used in construction was purchased for $300,000 7 years ago. Its annual O&M costs are $105,000. At the end of the 8-year planning horizon, the mixer will have a salvage value of $5,000. If the mixer is replaced, a new mixer will require an initial investment of $375,000. At the end of the 8-year planning horizon, it will have a salvage value of $45,000. Its annual O&M cost will be only $40,000 due to newer technology. Analyze this using an EUAC measure and a MARR of 15% to see if the concrete mixer should be replaced if the old mixer is sold for its market value of $65,000.
a. Use the cash flow approach (insider’s viewpoint approach).
Show the EUAC values used to make your decision:
Existing concrete mixer: $
New concrete mixer: $
Replace concrete mixer? Yes or No?
Carry all interim calculations to 5 decimal places and then round your final answer to the nearest dollar. The tolerance is ±3%.
b. Use the opportunity cost approach (outsider’s viewpoint approach).
Show the EUAC values used to make your decision:
Existing concrete mixer: $
New concrete mixer: $
Replace concrete mixer? Yes or No?
Carry all interim calculations to 5 decimal places and then round your final answer to the nearest dollar. The tolerance is ±3%.