An airport needs a modern material handling system for facilitating access to an

Question

An airport needs a modern material handling system for facilitating access to and from a busy maintenance hanger. A second-hand system will cost $75,000, A new system with improved technology can decrease labor hours by 20% compared to the used system. The new system will cost $150,000 to purchase and install. Both systems have a useful life of five years. The market value of the used system is expected to be $25,000 in five years, and the market value of the new system is anticipated to be $60,000 in five years. Current maintenance activity will require the used system to be operated 8 hours per day for 20 days per month. If labor costs $50 per hour and the MARR is 2% per month, which system should be recommended? Click the icon to view the interest and annuity table for discrete compounding when i=2% per month The PW of the difference between the old and new systems is s. (Round to the nearest dollar.)

Explanation / Answer

Number of months = 5 x 12 = 60

Monthly Labor cost for used system = $50 x 8 x 20 = $8,000

Monthly Labor cost for new system = $50 x 8 x 0.8 x 20 = $6,400

We compute Present Worth (PW) of costs for both systems as follows.

PW, Used system ($) = 75,000 + 8,000 x PVIFA(2%, 60) - 25,000 x PVIF(2%, 60)

= 75,000 + 8,000 x 34.7609 - 25,000 x 0.3048 = 75,000 + 278,087 - 7,620

= 345,467

PW, New system ($) = 150,000 + 6,400 x PVIFA(2%, 60) - 60,000 x PVIF(2%, 60)

= 150,000 + 6,400 x 34.7609 - 60,000 x 0.3048 = 150,000 + 222,470 - 18,288

= 354,182

Difference in PW ($) = 354,182 - 345,467 = 8,715

Since Used system has a lower PW of costs, this should be recommended.

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.