A pump is needed for 10 years at a remote location. The pump can be driven by an
ID: 1235441 • Letter: A
Question
A pump is needed for 10 years at a remote location. The pump can be driven by an electric motor if a
power line is extended to the site. Otherwise a gasoline engine will be used. Use an annual cash flow
analysis to determine, using the following data and a 10% interest rate, how the pump should be powered.
Calculate PWgas (present worth for gasoline option) and PWelectr (present worth for electric option). The
gasoline option can be repeated for another 5 years starting at the end of the fifth year at the same given
cost (neglect inflation effect).
Gasoline Electric
First Cost $2400 $6000
Annual Operating cost 1200 750
Annual Maintenance 300 50
Salvage value 300 600
Life in years 5 10
Based on your calculations, which of the following statements is the best answer:
(a) EUACgas = $2,084; EUACelectr = $2,985; Choose gasoline pump
(b) EUACgas = $3,045; EUACelectr = $4,884; Choose gasoline pump
(c) EUACgas = $1,739; EUACelectr = $1,458; Choose electric pump
(d) EUACgas = $2,084; EUACelectr = $1,739; Choose electric pump
Also Solve problem using annual cash flow analysis. Calculate EUACgas (equivalent uniform annual cost for
gasoline option) and EUACelectr (equivalent uniform annual cost for electric option).
Based on your calculations, which of the following statements is the best answer:
(a) EUACgas = $2,084; EUACelectr = $2,985; Choose gasoline pump
(b) EUACgas = $3,045; EUACelectr = $4,884; Choose gasoline pump
(c) EUACgas = $1,739; EUACelectr = $1,458; Choose electric pump
(d) EUACgas = $2,084; EUACelectr = $1,739; Choose electric pump
Explanation / Answer
the answer isD EUACgas = $2,084; EUACelectr = $1,739; Choose electric pump EUAC gas=(2400-300)(A/P,10%,5) +300*0.10+1200+300=$2083.98 EUAC electric=(6000-600)(A/P,10%,10)+600(0.10)+750+50=$1739.
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