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 $80,000. A new system with improved technology can decrease labor hours by 20% compared to the used system. The new system will cost S 140,000 to purchase and install Both systems have a useful life of five years. The market value of the used system is expected to be $20,000 in five years, and the market value of the new system is anticipated to be $50,000 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 SRound to the nearest dollar.)

Explanation / Answer

Monthly Savings in Labour cost Current labouur cost (8 hours of 20 days i.e. 160 hours @50 per hour) 8000 Savings due to reduction in cost at 20% 1600 per month Net Present Worth Prersent value of Monthly saving in labour c ost ($ 1600* Annuity factor at 2% for 60 periods i.e. 34.7609) 55617.44 Present value of Incremental salvage value (i.e.50000-20000 =$30000*PVF at Period-60 i.e.0.3048) 9144 Total Present value of cash inflows 64761.44 Incremental ccost of installation: Cost of New machinery 140,000 Less: cost of used machinery 80,000 60000 Present worth 4761.44 PW of new machinery over old one is $ 4761.44

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