4 Parker Hannifin of Cleveland, Ohio, manufactures CNG fuel dispensers. It needs

Question

4 Parker Hannifin of Cleveland, Ohio, manufactures CNG fuel dispensers. It needs replacement equipment to streamiine one of its production lines for a new contract, but it plans to sell the equipment at or before its expected life is reached at an estimated market value for used equipment 1 or 2 Problem 05.028.a Future Worth Analysis Select between the two options using the corporte MARR of 15% per year and a future worth analysis for the expected use period Option irst Cost AOC. per Year Expected Use $-73,000 $-13,000 $9,750 $-83,000 $-33,000 The future worth of option D is $ The future worth of option E is S Option Dis selected

Explanation / Answer

Expected use period of two options is different.

So, LCM method will be used to calculate the Future Worth.

LCM of 3 and 6 is 6.

Calculate the Future Worth of Option D -

FW = -73,000(F/P, 15%, 6) - 13,000(F/A, 15%, 6) - 63,250(F/P, 15%, 3) + $9,750

FW = (-73,000 * 2.3131) - (13,000 * 8.7537) - (63,250 * 1.5209) + 9,750

FW = -168,856.3 - 113,798.1 - 96,196.9 + 9,750

FW = -369,101.3

The Future Worth of Option D is $-369,101.3

Calculate the Future Worth of Option E -

FW = -83,000(F/P, 15%, 6) - 33,000(F/A, 15%, 6) + 10,750

FW = (-83,000 * 2.3131) - (33,000 * 8.7537) + 10,750

FW = -191,987.3 - 288,872.1 + 10,750

FW = -470,109.4

The Future Worth of Option E is $-470,109.4

Option that have numerically higher future worth should be selected.

Option D has numerically higher future worth.

So,

Option D is selected.

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