Ms. Child is considering the purchase of a new food packaging system. The system

Question

Ms. Child is considering the purchase of a new food packaging system. The system costs $147162. Ms. Child plans to borrow one-third of the purchase price from a bank at 4.5% per year compounded annually. The loan will be repaid using equal, annual payments over a 7-year period. The system is expected to last 15 years and have a salvage value of $14734 at that time. Over the 15 year period, Ms. Child expects to pay $1020 per year for maintenance. The system will save $4667 per year because of efficiencies. Ms. Child uses a MARR of 8% to evaluate investments. What is the equivalent uniform annual worth (EUAW) of this system?

Explanation / Answer

The annual loan payment is found by using PMT function in excel . The annual loan payment is equal to $ 8,324.54 per year

Annual cash flow = $ 4,667 - $ 1,020 - $ 8,324.54

Annual cash flow = $ 4,677.54

equivalent uniform annual worth (EUAW) of this system = -$ 147162 (A/P , 8% , 15 years) + $ 14,374 ( A/F , 8% , 15 years) + - $ 4,677.54

equivalent uniform annual worth (EUAW) of this system = -$ 147162 X 0.116830 + $ 14,374 X 0.036830 - $ $ 4,677.54

equivalent uniform annual worth (EUAW) of this system = -$ 21,341.08

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