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The Clap Chemical Company needs a large insulated stainless steel tank to expand its plant....

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Finance

The Clap Chemical Company needs a large insulated stainless steel tank to expand its plant. A recently closed brewery has offered to sell their tank for $15,000 delivered. The price is so low that Clap believes it can sell the tank at any future time and recover its $15,000 investment.

Installing the tank will cost $9000 and removing it will cost $5000. The outside of the tank is covered with heavy insulation that requires considerable maintenance. This will cost $3500 in year 1 and increase by $1000 per year.

(a) Based on a 12% before-tax MARR, what life of the insulated tank has the lowest EUAC?

(b) When the insulated tank is replaced by another tank is the replacements economic life likely to be shorter or larger? Explain.

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