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 $150,000 to purchase and install. Both systems have a useful life of five years. The market value of the used system is expected to be $25,000 in five years, and the market value of the new system is anticipated to be $40,000 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 $40 per hour and the MARR is 1% per month, which system should be recommended? Click the icon to view the interest and annuity table for discrete compounding when i= 1% per month The PW of the difference between the old and new systems is S.(Round to the nearest dollar.)

Explanation / Answer

Since the PW of the difference between the new and old systems in negative the old system is recommended.

PW of the difference between the old and new systems is $6,119.

Workings:

Calculation of the Present Worth of the diference between the old and new systems Years 0 1-5 5 Initial Investment -70000 Annual costs 15360 Salvage value 15000 MAR 12% 12% 12% Pvfactor 1 3.6048 0.5674 PV -70000 55369.73 8511 NPV -6119.27

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