(Engineering Economy course) Please don\'t use schedule method. I hope to Use th

Question

(Engineering Economy course)

Please don't use schedule method.

I hope to Use this method like P/A , F/A, A/F
F/P , A/P

Q3. A company is considering a new bottle-capping machine. The initial cost of the machine is 300,000 SR and it has a 20 year life. Yearly maintenance cost is estimated to be 15000 per year for the first 12 years and 20 000 for the rest of the machine useful life. The machine required a major overhaul costing 50 000 at the end of the tenth year of service? What is the future value of all the cost associated with owning and operating this machine if the interest rate is 8% per year? (6 mark) ifit

Explanation / Answer

Solution :- Present value of major overhaul cost of machine = 50000 / (1 + 0.08)10

= 50000 / (1.08)10

= 50000 / 2.158925

= $ 23159.67 (approx)

Calculation of future value of all costs associated with ownership and operation of the machine :-

= 15000 * [ (1 + 0.08)12 - 1 ] / 0.08 + 20000 * [ { (1 + 0.08)20 - 1 } / 0.08 - { (1 + 0.08)12 - 1 } / 0.08 ] + 23159.67 * (1.08)20

= 15000 * [ (1.08)12 - 1 ] / 0.08 + 20000 * [ { (1.08)20 - 1 } / 0.08 - { (1.08)12 - 1 } / 0.08 ] + 23159.67 * 4.6610

= 15000 * [ 2.51817 - 1 ] / 0.08 + 20000 * [ { 4.6610 - 1} / 0.08 - { 2.51817 - 1} / 0.08 ] + 107947.22

= 15000 * 1.51817 / 0.08 + 20000 * ( 3.6610 / 0.08 - 1.51817 / 0.08 ) + 107947.22

= 15000 * 18.977125 + 20000 * (45.7625 - 18.977125) + 107947.22

= 284656.875 + 20000 * 26.785375 + 107947.22

= 284656.875 + 535707.500 + 107947.22

= $ 928311.595 (Rounded off to $ 928312)

Conclusion :- Future value of all costs associated with ownership and operation of the machine = $ 928312 (approx).

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