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.
Reference
Taylor, George A., Managerial and Engineering Economy, Van Nostrand, 1964.
Originally posted in
http://knol.google.com/k/narayana-rao/replacement-problem-engineering-economy/2utb2lsm2k7a/596#
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