Engineering Economy 7th Edition by Leland Blank ,Anthony Tarquin

Exercise 22

Two manufacturers supply MRI systems for medical imaging. St. Jude's Hospital wishes to replace its current MRI equipment that was purchased 8 years ago with the newer technology and clarity of a state- of-the-art system. System K will have a first cost of $1,600,000, an operating cost of $70,000 per year, and a salvage value of $400,000 after its 4-year life. System L will have a first cost of $2,100,000, an operating cost of $50,000 the first year with an expected increase of $3000 per year thereafter, and no salvage value after its 8-year life. Which system should be selected on the basis of a future worth analysis at an interest rate of 12% per year