Two 100-horsepower motors are under consideration by the Mighty Machinery Compan

Question

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 is 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

Motor Q Motor R Incremental Horsepower Capacity 100 100 Kilowatt capacity (100 x 0.746) 74.6 74.6 Operating Efficiency 90% 88% 2% Watage per hour (efficiency x kilowatts) 67.14 65.648 1.492 Variable Cost per hour: Power cost - Kilowatts x 3.2cent /100 2.14848 2.10074 0.047744 Cost of Machine 5000 3500 1500 Annual Depreciation @15% 750.00 525.00 225 Break Even hours to make equal cost = 225/0.047744 = 4,713 hours hours

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