4. Two 100-horsepower motors are under consideration by the Mighty Machinery Com

Question

4. Two 100-horsepower motors are under consideration by the Mighty Machinery Company. Motor Q costs $5,000 and operates at 90% efficiency. Motor R costs $3,500 and s 88% efficient. Annual operating and maintenance costs are estimated to be 15% of the initial purchase price. Power costs 3.2 cents per kilowatt-hour. How many hours of full-load operation are necessary each year in order to justify the purchase of motor Q? Use a 15-year planning horizon; assume that salvage values will equal 20% of the initial purchase price; and let the MARR be 15%. (Note: 0.746 kilowatts = 1 horsepower).

Explanation / Answer

     

Let Number of hours of Machine Q be x Particulars (Machine Q) Amount($) Initial Cost Price 5000.00 Add: Annual Operating & Maintenance Cost (@15%) 750.00 Add: Power Cost 2.39x (100 horsepower * 0.746 * 3.2 cents * No. of hours machine worked) 5750 + 2.39x Return of Machine Q (15% MARR * 90% Efficiency) 13.5% (5750 + 2.39x)*13.5% Depreciation (Machine Q) [(5750 + 2.39x) - 1000]/15 (Salvage Value is 20% of initial cost price) Let Number of hours of Machine R be y Particulars (Machine Q) Amount($) Initial Cost Price 3500.00 Add: Annual Operating & Maintenance Cost (@15%) 525.00 Add: Power Cost 2.39y (100 horsepower * 0.746 * 3.2 cents * No. of hours machine worked) 4025 + 2.39y Return of Machine Q (15% MARR * 88% Efficiency) 13.2% (4025 + 2.39y)*13.2% Depreciation (Machine Q) [(4025 + 2.39y) - 1000]/15 (Salvage Value is 20% of initial cost price) Return of Motor Q is equal to Return of Motor R (5750 + 2.39x)*13.5% = (4025 + 2.39y)*13.2% First Equation Depreciation of Motor Q is equal to Return of Motor R [(5750 + 2.39x) - 1000]/15 = [(4025 + 2.39y) - 1000]/15 Second Equation By solving above 2 equations you can get the answer

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