Replacement Analysis
1) The Ellerson Furniture Company must purchase a new polisher. The cash flows for the two
alternatives are presented below. Both alternatives have a 5 year useful life. If the company’s
MARR is 9%, which set-up should be used?
First Cost Annual operating cost
True Grit $6800 $1500
Smoothest $4700 $2000
Determine the EAC for each alternative. What is the savings associated with the preferred alternative?
(Problem Hint: This is similar to problem 9.4 in textbook where they give you an answer.)
2) Two designs for water towers are being considered with different exterior materials. Design A has a
useful life of 30 years and design B has a useful life of 20 years. The cash flows for each alternative
are presented below (dollars in thousands, K). If the company’s MARR is 10%, which design should
be selected to minimize costs?
First Cost Annual operating cost
Design A $2100 K $25 K
Design B $1800 K $40 K
Determine the EAC of each alternative and the present worth over the least common multiple of lives.
Which is the best alternative
DETAILED ASSIGNMENT
