$0.065 A company is considering the installation of a fuel storage system that w
ID: 1154797 • Letter: #
Question
$0.065 A company is considering the installation of a fuel storage system that will save per gallon because the fuel can be purchased in bulk. The company uses 20,000 gallons per year. The system will cost $10,000 to install. The annual operating and maintenance costs will be zero in the first year but will increase by $25 each year thereafter. The system will have a salvage value of $3,000 after ten years. The interest rate is 12%. What is the equivalent uniform annual worth (EUAW) for the fuel storage system? Based on this analysis, should the company purchase the fuel storage? 10. A) Yes, because EUAW> B) Yes, because EUAW C) No, because EUAW>0 D) No, because EUAWExplanation / Answer
The savings = $0.065/gallon x 20000 gallons/year = $1300/year.
The annual operating cost initially = $0 and increases by $25 per year,so operating cost second year=$25,operating cost in third year=$50 and so on until operating cost for 10th year = $225
The annual worth is given by EUAW= EUAB(benefits)-EUAC(costs)
={1300+3000(A/F,12%,10)}-{10000(A/P,12%10)}-{2(A/G,12%,10)}
={1300+177}-1770-89.63
=$-338.63
Therefore,the company should not purchase the fuel storage system, option (D)
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