Question

A CNC machining center was purchased 6 years ago for $100,000. The current market value is $200,000, which will decline as follows over the next 5 years: $140,000, $130,000, $120,000, $100,000, and $80,000. The O&M costs are estimated to be $36,000 this year. These costs are expected to increase by $5,000 per year starting year 2. MARR = 10% Reference: Case Study 13 The EUAC for defender in year 2 is O A. $85,182 OB. $91,715 OC. $81,642 OD. $105,240

Answer 1

Statement showing EUAC for defender in year 2

Particulars	1	2	Total
O&M cost	36000	41000
Loss of interest ( Refer note 1)	20000	14000
Loss in Value (Refer note 2)	60000	10000
Total cost	116001	65002
PVIF @ 10%	0.9091	0.8264
PV	105455	53721	159176
PVIF(10%,2)			1.73554
EAUC = Sum of PV/PVIF(10%,2)			91715.76

Thus Ans B) $91715

Note 1)  Loss of interest for 1st year = Value of machine x interest rate = 200,000 x 10% = 20,000$

Loss of interest for 1st year = Value of machine x interest rate = 140,000 x 10% = 14,000$

Note 2) Loss in value for year 1 = 200,000-140,000 = 60,000$

=Loss in value for year 2 = 140,000-130,000 = 10,000$