A Large Textile Company Is Trying to Decide Among Three

question 15

Essay

A large textile company is trying to decide among three alternatives of sludge dewatering processes. The costs associated with these alternatives are shown below. Alternative Y will need an upgrade of $9700 at the end of year 2. At the end of year 2, alternative Z would be replaced with another alternative Z having the same installed and operating costs. If the MARR is 14% per year, which alternative should be chosen? $$\begin{array} { | l | l | l | l | } \hline \text { Alternative } & X & Y & Z \\\hline \text { Installed costs } & \$ 68,500 & \$ 48,500 & \$ 33,500 \\\hline \text { Annual operating costs } & \$ 6000 & \$ 4000 & \$ 5000 \\\hline \text { Overhaul cost in year 2 } &-& \$ 9700 & -\\\hline \text { Salvage value } & \$ 33,250 & \$ 28,250 & \$ 15,750 \\\hline \text { Useful life, years } & 8 & 4 & 2 \\\hline\end{array}$$

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Definitions:

Market Price

The present cost at which a product or service is available for purchase or sale in a specific market.

Optimal Short-Run Output

The level of production that maximizes profit or minimizes loss in the short term.

Market Price

The current price at which an asset or service can be bought or sold, determined by the supply and demand dynamics in the market.

Downward-Sloping Demand Curves

A graphical representation indicating that as the price of a good or service decreases, the quantity demanded increases, and vice versa.