The firm uses a minimum attractive rate of return

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A firm purchased a pump and motor for $1925 installed. It was later discovered that the pump had been improperly selected for the required head and discharge. As a result, the power bill for operating the pump was $900 for a year. A new pump, suited to the requirements , is available for $2450 installed, with a guaranteed that the power costs will not exceed $500 annually. The original pump and motor can be sold for $375. Assume a 10-year study period with zero salvage value for both pumps at the end of the period. The firm uses a minimum attractive rate of return of 10 percent before taxes. Based on present worth calculations, should the pump be replaced?

Reference no: EM131112427

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