A municipal water district needs to replace a pump. Two alternatives are being considered. Pump A will cost $42,400 installed. It is expected to be replaced in 20 years. The estimated salvage value at the end of 20 years is $3,200. Annual maintenance and electric power costs for operating pump A are estimated to be $3,600/year. The other alternative (pump B) will cost $16,000 installed and is expected to have a salvage value of $2,400 at the end of its useful life of 10 years. Annual operation and maintenance will cost $6,000/year for pump B. Which of the two alternatives is economically optimum at a discount rate of (a) 6 percent and (b) 10 percent?
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