The 16 overhead doors on your loading dock must be replaced now. The deluxe mode

ID: 1098613 • Letter: T

Question

The 16 overhead doors on your loading dock must be replaced now. The deluxe model costs

$2,200 for each door and will last for six years. The standard model costs $1,600 for each door

and will last for four years. The deluxe model is aluminum so it will have a scrap value of $150

(for each door) at the end of its life. The standard model is plastic and has no scrap value. The

use of the deluxe model on the loading dock will also save your company $1,000 per year (i.e.,

having all the doors saves you a total of $1,000 per year) in heating costs because of its ability to

seal better. If you use a MARR of 12% and Net Present Worth Analysis, which door should

you recommend?

Deluxe Model - common time span = 12 years

PW = -[(2200)(16 doors)] +1000(P/A, 12%, 12) + [(16 doors)(150 salvage val)](P/F, 12%, 6) - [(2200)(16)(P/F, 12%, 6) + [(16)(150)](P/F, 12%, 12)

PW = -35200 + 1000(6.194) + 2400(.5066) - 35200(.5066) + 2400(.2567)

PW = - $45,006 (rounded to nearest dollar)

Standard Model

PW = -[(1600)(16 doors)] - [(1600)(16)](P/F, 12%, 4) - [(1600)(16)](P/F, 12%, 8)

PW = -25600 - 25600(.6355) - 25600(.4039)

PW = - $52,209 (rounded to nearest dollar)

Since PW(deluxe) > PW(standard), the deluxe model should be chosen.

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