A diesel generator is needed to provide auxiliary power in the event that the pr

Question

A diesel generator is needed to provide auxiliary power in the event that the primary source of power is interrupted. Various generator designs are available, and more expensive generators tend to have higher reliabilities should they be called on to produce power. Estimates of reliabilities, capital investment costs, operating and maintenance expenses, market value, and the damages resulting from a complete power failure are given in the table below. If the life of each generator is 10 years and the MARR is 10% per year, which generator should be chosen if you assume two main power failures per year?

O&M; Reliability MV Capital Expenses per Cost of Power Failure Alternative Investment year S200,000 170,000 214,000 S6,200 8,000 4,000 0.97 0.96 0.98 S420,000 410,000 425,000 $40,000 25,000 38,000

Explanation / Answer

Generator S should be chosen.

Year PVF@10% R S T Amount Present Value Amount Present Value Amount Present Value 0 1 -200000 -200000 -170000 -170000 -214000 -214000 0 1 -12600 -12600 -16400 -16400 -8500 -8500 1-10 6.145 -6200 -38099 -8000 -49160 -4000 -24580 10 0.386 40000 15440 25000 9650 38000 14668 NPV of cost -235259 -225910 -232412

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