polypropylene wall caps, used for covering exterior vents for kitchen cooktops,
ID: 1195979 • Letter: P
Question
polypropylene wall caps, used for covering exterior vents for kitchen cooktops, bathroom fans, dryers,and other bulding air exhausts, can be made by two differtent methods. Method X will have a first cost of $75,000 , an opreating cost of $32,000 per year and a 9000 salvage value after 5 years. Method Ywill have a forst cost of $200,000, an operatiing cost of $ 20,000 per year, and a $16,000 salvage value after its 8-year life. At an interest rate of 10% per year, which method should be used on the basis of an annual worth analysis?
I=10% X Y FC -75000 -200000 AC per year -32000 -20000 SV 9000 16000 n 5 8Explanation / Answer
Abbreviations used:
EUAB - Equivalent Uniform Annual Benefit
EUAC - Equivalent Uniform Annual Cost
Method X:
EUAC of the first cost = 75000 (A/P, 10%, 5) = 75000 (0.2638) = $19,785
EUAB of the salvage value = 9000 (A/F, 10%, 5) = 9000 (0.1638) = $1474.2
EUAC of the method = AC per year + EUAC of the first cost - EUAB of the salvage value = $32,000 + $19785 - $1474.2 = $50310.80
Method Y:
EUAC of the first cost = 200,000 (A/P, 10%, 8) = 200,000 (0.1874) = $37,480
EUAB of the salvage value = 16000 (A/F, 10%, 8) = 16000 (0.0874) = $1398.40
EUAC of the method = AC per year + EUAC of the first cost - EUAB of the salvage value = $20,000 + $37480 - $1398.4 = $56081.60
Since the EUAC of Method X is lower than the EUAC of Method Y, Method X should be used.
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