A New Jersey university is considering automating its dining hall; there are two

Question

A New Jersey university is considering automating its dining hall; there are two potential systems for doing this. The school’s engineers have compiled the relevant financial data for each system, as given in the table below. Assume a project lifetime of 8 years and a 7% MARR. System A System B Initial Cost $850,000 $200,000 Annual O&M Saving $200,000 $55,000 Project life 8 years 8 years

a) List the table of Incremental Cash Flow based on the two alternatives.

b) Calculate the Incremental IRR for the online retailer’s investment.

c) Which alternative should be chosen? Why?

Explanation / Answer

Answer:a)

Answer:b)

Answer:C) NPW of System A =-850000+200000(P/A,7%,8)

=-850000+200000(5.389)

=227800

NPW of system B=-200000+55000(P/A,7%,8)

=-200000+55000(5.389)

=96395

System A should be choosen because it has NPW is higher.

Particulars System A System B Incremental cash flow Intial cost -850000 -200000 -650000 Annual O&M saving 200000 55000 145000

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