3. 135 points You are a member of an engineering project te provide the same lev

Question

3. 135 points You are a member of an engineering project te provide the same level of servi and costs. Select one pump between these two. Use Dra am has two options to select pump. Both units will ce (support) to the catalytic system but have different useful lives MARR-10% and repeatability assumption. w cash flow diagram for each pump too Pump Model HEPS9 SP240 $33,200 $2,165 $47,600 Capital investment Annual expenses: $1,720 $1,100 in year I,$500 in year 4, and and increasing $500/yr thereafter thereafter Electrical energy Maintenance increasing $100/yr Useful life (years) Market value (end of useful life) 5 0 9 5,000

Explanation / Answer

Cash flow for model SP240

(Electrical energy + Maintenance expenses)

Annuity

[1/(1+0.1)t]

$3265

($2165 + $1100)

$3765

($2165+$1600)

$4265

($2165+$2100)

$4765

($2165+2600)

$5265

($2165+$3100)

Present value of Cash Outflow for HEPS9

Total costa of HEPS9

Comparison of annualised cash outflow

$12928

Decision = Model HEPS9 should be selected since annualised cash outflow is lower in it.

Year

Cash flow for model SP240

(Electrical energy + Maintenance expenses)

Annuity

[1/(1+0.1)t]

Present value of cash outflow 1

$3265

($2165 + $1100)

0.9091 $2968 2

$3765

($2165+$1600)

0.8264 $3111 3

$4265

($2165+$2100)

0.7513 $3204 4

$4765

($2165+2600)

0.6831 $3255 5

$5265

($2165+$3100)

0.6209 $3269 Total annuity 3.7908 Total present value of cash outflow (A) $15807 Initial cash outflow Capital Investment Annuity Present value Year 0 $33200 (B) 1 $33200 Total cash costs present value (A+B) $49007

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