One of the packed absorption columns on your processing line requires significant maintenance with a total...

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One of the packed absorption columns on your processing linerequires significant maintenance with a total cost of $435,250.With this maintenance, the column is expected to operate for anadditional 10 years before requiring additional maintenance that isestimated to cost $263,425. The additional maintenance will furtherextend the lifetime of the column for another 10 years. The currentoperating costs for the column are $2,745 per month.
As an alternative, your company could purchase a new packedabsorption column with a total cost of $675,815 including removalof the old column and installation of the new column. The newcolumn is expected to operate for 20 years with proper maintenance,which costs $1,275 per month. The operating costs for the newcolumn are expected to be $2,545 per month.
a. Calculate the total present value of each option assuming anannual interest rate of 1.15% compounded monthly, and select themost economical option.
b.Convert the total present value to an equivalent uniformmonthly cost for the 20- year lifetime of each option.

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3.8 Ratings (786 Votes)

a Number of years N 10 Number of months n 2012 240 Annual interest rate I 115 Monthly interest rate i 11512 00958 Old column NPV 435250 263425PF I N See Answer

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One of the packed absorption columns on your processing linerequires significant maintenance with a total cost of $435,250.With this maintenance, the column is expected to operate for anadditional 10 years before requiring additional maintenance that isestimated to cost $263,425. The additional maintenance will furtherextend the lifetime of the column for another 10 years. The currentoperating costs for the column are $2,745 per month.As an alternative, your company could purchase a new packedabsorption column with a total cost of $675,815 including removalof the old column and installation of the new column. The newcolumn is expected to operate for 20 years with proper maintenance,which costs $1,275 per month. The operating costs for the newcolumn are expected to be $2,545 per month.a. Calculate the total present value of each option assuming anannual interest rate of 1.15% compounded monthly, and select themost economical option.b.Convert the total present value to an equivalent uniformmonthly cost for the 20- year lifetime of each option.