Engineering Economy problem. Please, when answering this problem, it will be mor
ID: 2383846 • Letter: E
Question
Engineering Economy problem.
Please, when answering this problem, it will be more than appreciated if you can present all information before solving, in order to learn and understand it. Example: Present Value = 20,000(P/F, i, n)+45,000(A/F, i, n)(P/F, i, n)... Thanks in advance!
There are two manufacturing processes that can be used by a company to reduce energy losses in the equipment’s. The following cost information for these two processes is known:
By doing the following analysis, select which manufacturing process must be selected (A or B):
a) Find the Present Value for Process A and for Process B, with an interest rate of 12% annually computed quarterly.
b) Find the Quarterly equivalent uniform value for Process A and for Process B with an interest rate of 8% annually computed quarterly
c) Find the Capitalized Cost for Process A and for Process B with an interest rate of 14% annually computed quarterly
d) Which manufacturing process must be selected. Process A or Process B?
Process A Process B Initial Cost $170,000 $220,000 Operation and Maintenance Cost $7,000 quarterly $5,000 quarterly Useful Life (Life Cycle) 2 years 4 years Residual Value $30,000 $42,000Explanation / Answer
Ans.
a. Find the Present Value for Process A and for Process B,
Process A
Cost of project = 170,000
Useful Life (Life Cycle) = 2year
P.V factor @12% = .7971
P.V of project = 170,000 * .7971 = 135,507
Process B :-
Cost of Processt = 220,000
Useful Life (Life Cycle) = 2year
P.V factor @12% = .6355
P.V of Process B = 220,000 * .6355 = 139,810
b) Find the Quarterly equivalent uniform value for Process A and for Process B
Process A
EUAC = 170,000(A/P, 2%, 8) - 30,000(A/F, 2%, 8) + 7000(A/G, 2%, 8)
= $
Process B
EUAC = 220,000(A/P, 2%, 16) - 42,000(A/F, 2%, 16) + 5,000(A/G, 2%, 16)
= $
c) Find the Capitalized Cost for Process A and for Process B
Process A
Initial Cost = 170,000 /2 = 85,000
= 85,000 * 14.7523% = $12.539.45
Capitalized Cost = $ 85,000+ $12.539.45 = $97,539.45
Process B
Initial Cost = 220,000 /4 = 55,000
= $55,000 * 14.7523% = $8,113.76
Capitalized Cost = $55,000 + $8,113.76 = $63,113.76
d) Which manufacturing process must be selected.
Process B can be selected because theire Operation and Maintenance Cost is less and annual Capitalized Cost also less compresion then process A.
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