11-CS-1 Engineering Economics · December 2019
Nivaar worked solution (AI-drafted; not reviewed by a licensed engineer)
National Exams — December 2019 — 11-CS-1 Engineering Economics. Open book; non-communicating calculator permitted. Any four of the five questions constitute a complete paper; all questions are of equal value. Fully worked solutions to all five follow.
Question text not reproduced: the examination questions are © Engineers and Geoscientists BC. Open the official past paper (linked at the top of this page) to read the question, then follow the worked solution below.
| n (yr) | Capital cost | O&M equiv. | EAC(n) |
|---|---|---|---|
| 1 | $22,400 | $17,000 | $39,400 |
| 2 | $18,769 | $19,057 | $37,826 |
| 3 | $14,974 | $21,398 | $36,372 |
| 4 | $14,005 | $24,065 | $38,070 |
EAC is minimized at n = 3 years (≈$36,372), so the old cutter's remaining economic life is 3 years.
The new machine's EAC ($35,000) is below the old machine's minimum EAC ($36,372) and below its next-year marginal cost ($39,400). Since the challenger is cheaper than keeping the defender, yes—replace the old machine now.
The original $130,000 purchase price (7 years ago) is the sunk cost—unrecoverable and irrelevant. Only the current market value ($49,000) and future costs matter.
