A construction company is considering buying a heavy duty street sweeper to redu
ID: 1096639 • Letter: A
Question
A construction company is considering buying a heavy duty street sweeper to reduce labor costs on the construction jobs which can be labor intensive when they are working near shopping malls that want everything clean all the time. However, the company doesn't exactly know how much business they will get in the coming years. What is the Expected Present Worth of the project?
Purchase Street Sweepers
Initial One Time Investment Cost
$210,000
Annual Operating/Maint Cost - Gas/Repairs
$15,000
MARR
10%
Project Life - Years
7
Annual Labor Savings - Strong Sales Year - 30%
$85,000
Annual Labor Savings
Purchase Street Sweepers
Initial One Time Investment Cost
$210,000
Annual Operating/Maint Cost - Gas/Repairs
$15,000
MARR
10%
Project Life - Years
7
Annual Labor Savings - Strong Sales Year - 30%
$85,000
Annual Labor Savings
Explanation / Answer
So Expected Present Worth of the Project is -25016
Initial Investment 210000 Annual Maintenance Cost 15000 Savings=0.30*85000+0.5*45000+0.2*25000 53000 Project Life in years 7 MARR 10% Interest Factor with interest=10% and no of years =7 , F=1/(1.10^1)+1/(1.10^2)+1/(1.10^3)+1/(1.10^4)+1/(1.10^5)+1/(1.10^6)+1/(1.10^7) 4.868 NPV=(53000-15000)*4.868-210000 -25016Related Questions
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