Ms. Child is considering the purchase of a new food packaging system. The system

Question

Ms. Child is considering the purchase of a new food packaging system. The system costs $230484. Ms. Child plans to borrow one-third of the purchase price from a bank at 4.5% per year compounded annually. The loan will be repaid using equal, annual payments over a 7-year period. The system is expected to last 15 years and have a salvage value of $19169 at that time. Over the 15 year period, Ms. Child expects to pay $1036 per year for maintenance. The system will save $1583 per year because of efficiencies. Ms. Child uses a MARR of 8% to evaluate investments. What is the equivalent uniform annual worth (EUAW) of this system?

Explanation / Answer

Loan Payment Loan Amount = 1/3 x $230,484 $76,828 Nper 7 years Rate 4.50% Annual Payments= PMT(4.50%,7,-76828) $13,037.82 or Loan Payments = 1/3 x $230,484 (A/P,4.50%,7) Loan Payments =$76,828 x 0.1697 $13,037.71 Initial Cost $230,484 Annual Maintenance cost $1,036 Annual Savings $1,583 Annual Net Savings $547 MARR 8.00% Nper 15 years EUAW = -$230,484(A/P 8%,15) - $13,037.71 - $547 + $19169(A/F,8%,15) EUAW = -$230,484 x 0.1168 - $13,037.71 - $547 + $19169 x 0.0368 EUAW = -$39,799.82

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