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A medium-sized industrial grade compressor can be purchased for $35,000. Annual O&M costs are expected to...

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Accounting

A medium-sized industrial grade compressor can be purchased for$35,000. Annual O&M costs are expected to increase $1,300 everyyear, with a 1st year O&M cost of $2,000. (MARR =16%, andplanning horizon is 10 years)

• The compressor salvage value for a given period t, iscalculated based on the following equation: Salvage value (t) =$30,000– $3,000 * t

a) Find the Optimum Replacement Interval for this Equipment

b) Find the Optimum Replacement Interval for this Equipment ifthe O&M costs is increased to $1,600/yr. What is yourconclusion?

c) Find the Optimum Replacement Interval for this Equipment ifthe initial cost is reduced to $32,000. What is yourconclusion?

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