The Briggs and Stratton Commercial Division designs and manufactures small engin

Question

The Briggs and Stratton Commercial Division designs and manufactures small engines for golf turf maintenance equipment. A robotics-based testing system will ensure that their new signature guarantee program entitled "Always Insta-Start" does indeed work for every engine produced. Compare the two systems at MARR-10% per year. Solve using (a) tabulated factors, and (b) single-cell spreadsheet functions. Pull System Push System Robot and support equipment first cost, $1,500,000-2,250,000 Annual M&O; cost,$ per year -700,000 -600,000 Rebuild cost in year 3,$ o -500,000 Salvage value, $ 100,000 50,000 Estimated life, years 8 8

Explanation / Answer

Equivalent uniform annual cost= P(A/p, i%, N) -S(A/F, i%,n) + other costs

Pull System= 1500000(P/A,10%,8years) - 100000 (P/F, 10%,8 years) +700000

                   =1500000/5.3349 -100000(0.4665) +700000

                    = 281167.40 -46650 +700000 = 934,517.4

Push system= (2250000+500000(P/F,10%,3 years))(P/A, 10%, 8 years)- 50000 (P/F,10%, 8 years) + 600000

                = (2250000 + 500000*0.7513)/5.3349 -50000*0.4665 +600000

                = 1,068,839.80

EUAF in first option (pull system) is lesser hence the firm should go for Pull system.

Note: A/P used for Present Value for Annuity Factor

          A/F used for Present Value Factor

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