Question

PROBLEM 2: To protect critical habitat your agency constructs and maintains fire breaks using a bulldozer. The current dozer is 15 years old and you have been tasked with determining what maintenance and replacement schedule should be followed by the agency. Your agency uses a discount rate of 5% (annual). 2a) A new dozer costs $300,000 and will last for 20 years. What is the Present Value of the perpetual periodic costs associated with only buying new dozers? 2b) A new dozer costs $300,000 but will last for 30 years if you invest $50,000 in rebuilding it (major repair/maintenance) when it is 5,15, and 25 years old . What is the Present Value of the perpetual periodic costs associated with using aggressive maintenance to extend the life of your dozers? 2c) Which option would you prefer?

Answer 1