Houston Metropolitan Water Utility Company purchased sum of$250000. The cost of

Question

Houston Metropolitan Water Utility Company purchased sum of$250000. The cost of energy for operating these high-lift pumps in the water distribution system was $1.4 million for the first four years.Beginning in year five, the coast increased by $30,000 ech year for the next 16 years.It is intended at the end of this subsequent 16 years that the pumps will be replaced and sold at a market value of about 20% of the initial purchase cost. The MARR for this project is 7%. Determine the engineering economy symbols and their value for each option. Construct the cash flow diagram What is the equivalent worth of the project now Caluculate the annual eqivalent cost of the project

Explanation / Answer

Problem 2 :

a) Present worth analysis (LCM) :

   LCM of Method A 3 years and Method B 6 years = 2 * 3 = 6

   Present value of cash outflow of Method A

  = 150000 + 150000 * PVF(10%,3year) + 45000  *PVAF(10%,6years) + 50000 *PVAF(10%,6years) +55000 *PVAF(10%,6years)

   = 150000 + 112650 + 195975 + 217750 + 239525

   = $915900

Present value of cash outflow of Method B

= 175000 + 55000 *PVAF(10%,6years)

= 414525

Method B is better method to be choosen , because it has low present cost of outflow

b) period for 3 years :

Present vlaue of cash ouflow of Method A:

= initial cost + $45000 * PVF(10%,1year) + $50000 *  PVF(10%,2year) + $55000 *  PVF(10%,3year)

= $150000 + 45000 * 0.909 + 50000 * 0.826 + 55000 * 0.751

= 150000 + 40905 +41300 + 41305

= $273510

  Present vlaue of cash ouflow of Method B:

  = initial cost + $55000 * PVAF(10%,3year)

= $175000 + $55000 * 2.487

= $311785

Method A is better Method because it has low present value of cash outflow.

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