Your local foundry is adding a new furnace. There are several different styles a
ID: 1151684 • Letter: Y
Question
Your local foundry is adding a new furnace. There are several different styles and types of furnaces, so the foundry must select from among a set of mutually exclusive alternatives. Initial capital investment and annual expenses for each alternative are given in the table below. None have any market value at the end of its useful life. Using a MARR of 15%, which furnace should be chosen? Furnace F2 $110,000 $125,000 $138,000 10 years $51,625 Fl F3 Investment Useful life Total annual expenses 10 years $53,800 10 years $45,033Explanation / Answer
Present Worth of F1
Present Worth of F2
Present Worth of F3
Investment = $110,000
Life = 10 years
Annual Expenses = $53,800
MARR = 15%
Present Worth
= $110,000 + $53,800 (P/A, 15%, 10)
= $110,000 + $53,800 (5.0188)
= 380,011.44
Investment = $125,000
Life = 10 years
Annual Expenses = $51,625
MARR = 15%
Present Worth
= $125,000 + $51,625 (P/A, 15%, 10)
= $125,000 + $51,625 (5.0188)
= 384,095.55
Investment = $138,000
Life = 10 years
Annual Expenses = $45,033
MARR = 15%
Present Worth
= $138,000 + $45,033 (P/A, 15%, 10)
= $138,000 + $45,033 (5.0188)
= 364,011.62
On the basis of the above calculations, select the F3 (Furnace 3) as it has the lowest cost.
Present Worth of F1
Present Worth of F2
Present Worth of F3
Investment = $110,000
Life = 10 years
Annual Expenses = $53,800
MARR = 15%
Present Worth
= $110,000 + $53,800 (P/A, 15%, 10)
= $110,000 + $53,800 (5.0188)
= 380,011.44
Investment = $125,000
Life = 10 years
Annual Expenses = $51,625
MARR = 15%
Present Worth
= $125,000 + $51,625 (P/A, 15%, 10)
= $125,000 + $51,625 (5.0188)
= 384,095.55
Investment = $138,000
Life = 10 years
Annual Expenses = $45,033
MARR = 15%
Present Worth
= $138,000 + $45,033 (P/A, 15%, 10)
= $138,000 + $45,033 (5.0188)
= 364,011.62
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