Evaluate the effectiveness of the tool and the correctness

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Reference no: EM13180747

Barry, a Texas Crude Company engineer who did not take Engineering Economy while studying at Tech, recommended that Texas Crude purchase a special tool to reduce the cost of pumping oil out of the bayous of St. Martin Parish. As a result of Barry's recommendation, Texas Crude purchased the tool for $30,000 on January 1, 2005. By January 1, 2006, the tool had saved a total of $5,000 and went on line full time. After going on line full time, the tool saved Texas Crude $9,000 each year for the next three years and Barry was happy. However, Barry recommended the "el-cheapo" model, and it started breaking down during the early part of year five, and ended up by saving only $4,000 during year five. It was scrapped as being unusable at the end of year five, and had a zero salvage value. Barry told his boss that his recommendation had been correct, as it had saved Texas Crude $6,000 and that is a savings of 20%. Use a MARR of 10% and evaluate the effectiveness of the tool and the correctness of Barry's recommendation.

Reference no: EM13180747

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