Chatham Automotive purchased new electric forklifts to move steel automobile parts two years ago. They cost $65,000 each, including the charging stand. In practice, it was found that they did not hold a charge as long as claimed by the manufacturer, so operating costs are very high. As a result, their current salvage value is about $9,000. Chatham is considering replacing them with propane models. New propane forklifts cost $58,000 each. After one year, they have a salvage value of $40,000, and thereafter decline in value at a declining-balance depreciation rate of 20 percent, as does the electric model from this time on. The MARR is 8 percent. Operating costs for the electric model will be $19,000 this year, rising by 12 percent per year. Operating costs for the propane model will initially be $11,000 over the first year, rising by 12 percent per year. Should Chatham Automotive replace the forklifts now? E Click the icon to view the table of compound interest factors for discrete compounding periods when i = 8%.
Chatham Automotive purchased new electric forklifts to move steel automobile parts two years ago. They cost $65,000 each, including the charging stand. In practice, it was found that they did not hold a charge as long as claimed by the manufacturer, so operating costs are very high. As a result, their current salvage value is about $9,000. Chatham is considering replacing them with propane models. New propane forklifts cost $58,000 each. After one year, they have a salvage value of $40,000, and thereafter decline in value at a declining-balance depreciation rate of 20 percent, as does the electric model from this time on. The MARR is 8 percent. Operating costs for the electric model will be $19,000 this year, rising by 12 percent per year. Operating costs for the propane model will initially be $11,000 over the first year, rising by 12 percent per year. Should Chatham Automotive replace the forklifts now? E Click the icon to view the table of compound interest factors for discrete compounding periods when i = 8%.
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter17: Long-term Investment Analysis
Section: Chapter Questions
Problem 4E
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Question
![Chatham Automotive purchased new electric forklifts to move steel automobile parts two years ago. They cost $65,000 each, including the charging stand. In practice,
it was found that they did not hold a charge as long as claimed by the manufacturer, so operating costs are very high. As a result, their current salvage value is about
$9,000.
Chatham is considering replacing them with propane models. New propane forklifts cost $58,000 each. After one year, they have a salvage value of $40,000, and
thereafter decline in value at a declining-balance depreciation rate of 20 percent, as does the electric model from this time on. The MARR is 8 percent. Operating
costs for the electric model will be $19,000 this year, rising by 12 percent per year. Operating costs for the propane model will initially be $11,000 over the first year,
rising by 12 percent per year. Should Chatham Automotive replace the forklifts now?
E Click the icon to view the table of compound interest factors for discrete compounding periods when i= 8%.
Chatham Automotive should not replace the forklifts now since the minimum total EAC for the electric forklifts is $ 21,520, which is lower than $ 25,265 , the
minimum total EAC for the propane forklifts.
(Round to the nearest dollar as needed.)](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fbd995525-d253-4921-8ccc-4f78fb9f767e%2Fd412d9aa-ab09-48dd-a898-6c5e5a9288c6%2F1nb3o3_processed.png&w=3840&q=75)
Transcribed Image Text:Chatham Automotive purchased new electric forklifts to move steel automobile parts two years ago. They cost $65,000 each, including the charging stand. In practice,
it was found that they did not hold a charge as long as claimed by the manufacturer, so operating costs are very high. As a result, their current salvage value is about
$9,000.
Chatham is considering replacing them with propane models. New propane forklifts cost $58,000 each. After one year, they have a salvage value of $40,000, and
thereafter decline in value at a declining-balance depreciation rate of 20 percent, as does the electric model from this time on. The MARR is 8 percent. Operating
costs for the electric model will be $19,000 this year, rising by 12 percent per year. Operating costs for the propane model will initially be $11,000 over the first year,
rising by 12 percent per year. Should Chatham Automotive replace the forklifts now?
E Click the icon to view the table of compound interest factors for discrete compounding periods when i= 8%.
Chatham Automotive should not replace the forklifts now since the minimum total EAC for the electric forklifts is $ 21,520, which is lower than $ 25,265 , the
minimum total EAC for the propane forklifts.
(Round to the nearest dollar as needed.)
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