2.2 A manufacturer has been ordered by the City of Jersey City to stop dischargi

Question

2.2 A manufacturer has been ordered by the City of Jersey City to stop discharging waste liquids into the city sewer system. You are the engineer responsible to make a decision to select one of the following Annual System Installed Cost Operating CostSalvage Value $ 30,000.00$ 6,000.00$2,000.00 $ 35,000.00$ 5,000.005,000.00 80,000.00 000.00 40,000.00 Assuming the system is expected to last and be used for 20 years and money is worth 8%, which system should be purchased? a) Calculate the EUAC for the System A. [1 points] b) Calculate the EUAC for the System B. [1 points] c) Calculate the EUAC for the System C. [1 points] d) Which plan should be adopted? hy? pointg

Explanation / Answer

2.2

n = 20 years

R = 8%

Present value of all cost = initial installed cost + present value of annual operating cost – present value of salvage value

A.

Present value of all cost for system A = 30000 + 6000*(1-1/1.08^20)/.08 - 2000/1.08^20 = $88479.79

Then,

EUAC for system A = 88479.79/((1-1/1.08^20)/.08) = $9011.86 (it is negative as it is a cost)

B.

Present value of all cost for system B = 35000 + 5000*(1-1/1.08^20)/.08 - 5000/1.08^20 = $83018

Then,

EUAC for system B = 83018/((1-1/1.08^20)/.08) = $8455.57 (it is negative as it is a cost)

C.

Present value of all cost for system C = 80000 + 1000*(1-1/1.08^20)/.08 - 40000/1.08^20 = $81236.22

Then,

EUAC for system C = 81236.22/((1-1/1.08^20)/.08) = $8274.09 (it is negative as it is a cost)

D.

System C should be selected, because it has lowest EUAC and it is most economical in nature.

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