The opportunity cost approach and cash flow approach

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Reference no: EM132021672

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: $

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: $

Reference no: EM132021672

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