Please help in engineering economy course Q2. AI NAHDA Development Company is co
ID: 2486762 • Letter: P
Question
Please help in engineering economy courseQ2. AI NAHDA Development Company is considering three types of tower cranes for the construction of the new mall. The cash flow for the three types is shown below: Model $10,000 $1,000 $15,000 $800 ,20,000 Purchase Cost $1,200 Annual Operation Cost $2.800 10 Years 2.900 20 Years $3,000 30 Years Annual Revenue Useful Life The alternatives could be replaced with another with identical cost and benefits. The MARR is 10%. Which type of crane, should be selected based on Future Worth (FW) and any other method? (10 marks). a-
Explanation / Answer
MODEL A
FUTUR VALUE OFINITIAL CASH FLOW
= ($10000) * FVIF 10%, 10 PERIODS
= ($10000) * 2.5973
= ($25973)
FUTUR VALUE OF ANNNUITY CASH FLOW $1800 (I;E $2800 - $1000)
= $1800 * FVIFA10%, 10 PERIOD
= $1800 * 15.9374
= $28687 (ROUNDED)
NET FUTURE WORTH
= ($25973) + $28687
= $2714
EQUATED ANNUAL BENIFIT
= $2714 / FVIVA10%, 10 PERIODS
= $2714 / 15.9374
= $170.29
MODEL B
FUTUR VALUE OFINITIAL CASH FLOW
= ($15000) * FVIF 10%, 20 PERIODS
= ($15000) * 6.7275
= ($100913)
FUTUR VALUE OF ANNNUITY CASH FLOW $2100 (I;E $2900 - $800)
= $2100 * FVIFA10%, 20 PERIOD
= $2100 * 57.2750
= $120278 (ROUNDED)
NET FUTURE WORTH
= ($100913) + $120278
= $19365
EQUATED ANNUAL BENIFIT
= $19365 / FVIVA10%, 20 PERIODS
= $19365 / 57.2750
= $338.11
MODEL C
FUTUR VALUE OFINITIAL CASH FLOW
= ($20000) * FVIF 10%, 30 PERIODS
= ($20000) * 17.4494
= ($348988)
FUTUR VALUE OF ANNNUITY CASH FLOW $1800 (I;E $3000 - $1200)
= $1800 * FVIFA10%, 30 PERIOD
= $1800 * 164.4940
= $296089 (ROUNDED)
NET FUTURE WORTH
= ($348988) + $296089
= ($52899)
EQUATED ANNUAL BENIFIT
= ($52899) / FVIVA10%, 30 PERIODS
= ($52899) / 164.4940
= ($321)
CONCLUSION- MODEL B SHOULD BE SELECTED AS IT HAS HIGHER EQUATED FW.
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