Evaluate the effectiveness of the tool and the correctness

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Reference no: EM13817929

Austin, a US Crude Company engineer recommended that US Crude purchase a special tool to reduce the cost of pumping oil out of the bayous of St. Martin Parish. As a result of Austin's recommendation, US Crude purchased the tool for $300,000 on January 1, 2010. By January 1, 2011, the tool had saved a total of $45,000 and went on line full time. After going on line full time, the tool saved US Crude $90,000 each year for the next three years and Austin was happy. However, Austin recommended the "el-cheapo" model, and it started breaking down during the early part of year five, and ended up by saving only $50,000 during year five. It was scrapped as being unusable at the end of year five, and had a zero salvage value. Austin told his boss that his recommendation had been correct. Use a MARR of 10% and evaluate the effectiveness of the tool and the correctness of Austin's recommendation.

Reference no: EM13817929

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