Contemporary Engineering Economics 6th Edition by Chan Park

Exercise 17

Company X has been contracting its overhauling work to Company Y for $40,000 per machine per year. Company X estimates that by building a $500,000 maintenance facility with a life of 15 years and a salvage value of $100,000 at the end of its life, it could handle its own overhauling at a cost of only $30,000 per machine per year. What is the minimum annual number of machines that Company X must operate to make it economically feasible to build its own facility (Assume an interest rate of 10%.)