You Are Considering Whether to Replace an Existing Flow Meter

question 48

Essay

You are considering whether to replace an existing flow meter. The existing meter can be sold now for $50 or it can be sold in 1 year for $10. It costs $30 per year to operate and maintain. A new meter costs $400 and has a 10-year life. It could be sold for $40 at the end of its life. The new meter costs $14 per year to operate and maintain. What do you recommend if the cost of capital is 12%?
A._12,10 - $40/(1.12)¹⁰ = $471.87; $4
71.87/5.65 = $83.51
Because the cost of keeping the old machine is less than the cost of the new machine, the old machine should not be replaced.

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Definitions:

Metric System

A system of measurement based on multiples of 10.

Gram

A metric unit of mass equal to one thousandth of a kilogram, commonly used in scientific measurements.

Apothecary Equivalent

A term used to refer to the equivalent measurements or substances used in old pharmacy practices.

Fluid Ounce

A unit of volume used primarily in the United States to measure liquids, equivalent to approximately 29.57 milliliters.