November 29, 2011

Replacement Problem - Engineering Economy Analysis

An existing compressor will supply only 60% of the predicted future compressed air requirements of the plant. Its net realizable value is $2,000 with operating disbursementsof $5,000 a year at that load. A new compressor that will just furnish the required 40% additional air can be purchased for $9,000. Its operating disbursements are $3,100 a year.

A full sized machine can be purchased for $15,000 with operating disbursements of $7,600.

The economic life of all three machines is estimated to be 10 years with salvage values equal to 10% of the present values.

Compare the machines and determine the best option for the company.

Assume any data you need.


Taylor, George A., Managerial and Engineering Economy, Van Nostrand, 1964.

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