This question has 3 PARTS but it is one question. From textbook Fundamentals of

Question

This question has 3 PARTS but it is one question. From textbook Fundamentals of Engineering Economic Analysis, 5th edition, 4th chapter, problem number 26. Please do not use Excel, show work using formulas and calculations. Please show cash flow diagrams, and feel free to ask me any follow up questions. Due in approximately 12 hours.

Two storage structure, given code names Y and Z, are being considered for a military base. The military uses a 5 percent/year expected rate of return and a 24-year life for decisions of this type. The relevant characteristics for each structure are shown below:

PART A: What is the present worth of each machine? Find present worth and future value.

PART B: What is the decision rule for determining the preferred machine based on present worth ranking?

PART C: Which structure should be recommended?

Structure Y Structure Z First Cost $4500 $1000 Estimated Life 12 years 24 years Est. Salvage Value None $1800 Annual Maintenance Cost $1000 $720

Explanation / Answer

Structure Y

Structure Z

Decision rule : NPV

Structure Z should be recommended due to lesser cash outflows.

Year Cash flows PVF@5% PV 0 -4500 1 -4500 1 -1000 0.95 -952.38 2 -1000 0.91 -907.03 3 -1000 0.86 -863.84 4 -1000 0.82 -822.7 5 -1000 0.78 -783.53 6 -1000 0.75 -746.22 7 -1000 0.71 -710.68 8 -1000 0.68 -676.84 9 -1000 0.64 -644.61 10 -1000 0.61 -613.91 11 -1000 0.58 -584.68 12 -1000 0.56 -556.84 NPV -13363.25

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