Engineering Economy 7th Edition by Leland Blank ,Anthony Tarquin

Exercise 48

DVH Technologies purchases several parts for the instruments it makes via a fixed-price contract of $190,000 per year from a local supplier. The company is considering making the parts in-house through the purchase of equipment that will have a first cost of $240,000 with an estimated salvage value of $30,000 after 5 years. The operating cost is difficult to estimate, but company engineers have made optimistic, most likely, and pessimistic estimates of $60,000, $85,000, and $120,000 per year, respectively. Determine if the company should purchase the equipment under any of the operating cost scenarios. The MARR is 20% per year.