A high-pressure pump at a methane gas (biofuel) plant in Memphis costs $3 1,000

Question

A high-pressure pump at a methane gas (biofuel) plant in Memphis costs $3 1,000 for installation and has an estimated life of 12 years. By the addition of a specialized piece of auxiliary equipment, an annual savings of $400 in operating expense for the pump can be realized, and the estimated life of the pump can be doubled to 24 years. The salvage (market) value of either alternative is negligible at any time. If the MARR is 7% per year, what present expenditure for the auxiliary equipment can plant managers justify spending? Click the icon to view the interest and annuity table for discrete compounding when = 7% per year. The maximum expenditure for the auxiliary equipment is S. (Round to the nearest hundreds.)

Explanation / Answer

Ans : $ 4587

Working Notes

Year Annual Savings DF(7%) PV 1 $ 400.00 0.934579 $     373.83 2 $ 400.00 0.873439 $     349.38 3 $ 400.00 0.816298 $     326.52 4 $ 400.00 0.762895 $     305.16 5 $ 400.00 0.712986 $     285.19 6 $ 400.00 0.666342 $     266.54 7 $ 400.00 0.62275 $     249.10 8 $ 400.00 0.582009 $     232.80 9 $ 400.00 0.543934 $     217.57 10 $ 400.00 0.508349 $     203.34 11 $ 400.00 0.475093 $     190.04 12 $ 400.00 0.444012 $     177.60 13 $ 400.00 0.414964 $     165.99 14 $ 400.00 0.387817 $     155.13 15 $ 400.00 0.362446 $     144.98 16 $ 400.00 0.338735 $     135.49 17 $ 400.00 0.316574 $     126.63 18 $ 400.00 0.295864 $     118.35 19 $ 400.00 0.276508 $     110.60 20 $ 400.00 0.258419 $     103.37 21 $ 400.00 0.241513 $       96.61 22 $ 400.00 0.225713 $       90.29 23 $ 400.00 0.210947 $       84.38 24 $ 400.00 0.197147 $       78.86 Total Present Value $ 4,587.73

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