ACM C A08 Construction Equipment Management

Assignment 2

Submission Deadline: 2nd September, 10am

(1) Problem file attached here as: "Assignment 2.pdf", (2) Individual submission to be made
by everyone on TEAMS Platform ONLY- (use turn-in feature). (3) Late submission will carry a
penalty of 1 mark per 2 hour late than deadline mentioned in assignment

Problem-1 [4 marks]
For a piece of construction equipment mounted on pneumatic tires, find out the hourly
ownership cost using average annual investment method with straight line depreciation from the
following data;
Initial cost = Rs.80,00,000
Estimated salvage value = (Your 5-digit-ID x 70)*
Useful life of the equipment = 11 years Cost of a set of tires = Rs.600000
The equipment will operate 1800 hours per year. The interest rate on investment is 7.5% per
year. The annual rates for taxes, insurance and storage cost are 3%, 2.5% and 1% respectively.
Show manual calculations with formula used.

HINT: As the factory cost includes cost of tires, tire cost is subtracted from initial cost of the
equipment for calculating ownership cost at start of first year (P)
* For example : (Your 5-digit-ID x 70) = 19001 x 70 = 13,30,070

Problem-2 [4 marks]
An engineer is trying to determine the economic life of new metal press. The press cost is (Your 5-
digit-ID – 9,500)* initially. First year maintenance costs are $1,000. Maintenance costs are
forecast to increase $1,000 per year for each year after the first. Fill in the table below and
determine the economic life of the press. Consider only maintenance (given already), and capital
recovery in your analysis. Interest is 5%. Show manual calculations with formula used.

Maintenance EAC of EAC of Total

Year Cost Capital Recovery Maintenance EAC REMARKS
1 $1,000 $11,500 $1,000 $12,500 example cost=10,000
2 2,000 1,465
3 .. 1,907
4 .. 2,326
5 .. 2,723
6 .. 3,097
7 .. 3,450
8 8,000 3,781

HINT: EAC of Capital Recovery = $10,000 (A/P, 15%, n) => A = P * CRF

 Where, (A/P, 15%, n) => CR Factor = i⋅(1+i)n/ [(1+i)n −1]

*For example: (Your 5-digit-ID – 9,500)* = 19001 -9,500 = 9,501

* Equivalent annual cost (EAC) is the annual cost of owning, operating, and maintaining
an asset over its entire life

Problem-3 [7 marks]
The computer system used for production and administration control at a large cannery is being
considered for replacement. Of the available replacement system, “Challenger I” has been
considered the best. However, it is anticipated that after one year, the “Challenger II” model will
become available, with significant technological modifications. The salvage value projections for
these three systems are summarized below. Assuming that their performance would otherwise be
comparable, should we replace the existing system? Assume interest rate 12%, and a useful life
of 5 years on all alternatives.

Salvage Value at End of the Year (S)

Year Existing Computer Challenger I Challenger II

0 $20,000 $25,000 $24,000
1 16,000 22,000 23,000
2 13,000 21,000 23,000
3 11,000 20,000 22,000
4 8,000 16,000 16,000
5 3,000 10,000 10,000

HINT: Existing Computer (defender): i = 0.12

Salvage Value (S) at EAC Capital Recovery

Year End of Year = (P - S) *CRF + S*i
0 P= 20,000 --
1 16,000 6,400

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NOTE: To avoid Penalty for late submission (1 mark per 2 hour late), submit before deadline