The MARR is 9% using an annual worth method to compare Which option is the best
ID: 2649511 • Letter: T
Question
The MARR is 9% using an annual worth method to compare Which option is the best
Press Plate
Option 1 Option 2
Initial Cost $305,000 $185,000
Installation Cost $20,000 $26,500
Annual Maintenance Cost $2,500 in the first year, increasing by $30 each year after, $3,500 every year
Annual Savings $40,000 $33,000
Service Life 18 years 12 years
Scrap Value $6,000 $7,000
What scrap value will make the defeated option the best option
Remember the service lives are different.
The interest rate is the nominal interest rate
Explanation / Answer
OPTIO 1
Calculation of present value of annual maitennace cost
2500*.914+2530*.841+2560*.772+2590*.708+2620*.650+2650*.596+2680*.547+2710*.502+2740*.461+2770*.422+2800*.387+2830*.355+2860*..326+2890*..300+2920*..274+2850*.251+2880*.231+2910*.212
=2285+2128+1976+1834+1703+1580+1465+1360+1263+1169+1084+1005+932+867+800+715+665+617
= 23448
For option II it will be 18852
OPTIO 1
Option II is better
Initial Cost 305000 305000*1 305000 Installation Cost 20000 20000*1 20000 maintenance 23448 Annual Savings 40000 8.25 (330150) 6000 6000*.212 .(1272) 17026Related Questions
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