Chatham Automotive purchased new electric forklifts to move steel automobile parts two years ago. These cost $75 000 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. This also results in their currently having a salvage value of about $10 000. Chatham is considering replacing them with propane models. The new ones cost $58000. 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 are $20 000 over the first year, rising by 12 percent per year. Operating costs for the propane model will initially be $10 000 over the first year, rising by 12 percent per year. Should Chatham Automotive replace the forklifts now?

Chatham Automotive purchased new electric forklifts to move steel automobile parts two years ago. These cost $75 000 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. This also results in their currently having a salvage value of about $10 000. Chatham is considering replacing them with propane models. The new ones cost $58000. 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 are $20 000 over the first year, rising by 12 percent per year. Operating costs for the propane model will initially be $10 000 over the first year, rising by 12 percent per year. Should Chatham Automotive replace the forklifts now?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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