c) Question (3) (40 points) In the design of certain industrial facilities, two

Question

c) Question (3) (40 points) In the design of certain industrial facilities, two alternative structures are under consideration. We identify these two alternatives as Plan A and Plan B. Estimates for Plan A and B are Disbursements Cost of Equipment (First cost, P) $25000 Service Life (n) Plan B $20000 10 years $1000 $1500 Plan A Cost of Equipment (First cos, P) $25000 5 years $8000 Salvage Value (S) Annual Operation&Maintenance; Cost $1000 It is desired to compare these alternatives using a minimum attractive rate of return (MARR) of 10%. a) Compare plan A and B by using Equivalent Uniform Annual cost method. (15 points) b) Compare Plan A and B using the Present worth method. (Note: For using Present Worth Method You need to have the same number of service lives for both plans. Consider renewal of plan A for another 5 years for calculating Present worth ).(15 points)

Explanation / Answer

A B cost of Equip(year 0)      25,000.00      20,000.00 life                 5              10 salvage value        8,000.00        1,000.00 O&M        1,000.00        1,500.00 PVAF(10%)            3.7908            6.1446 PVIF            0.6209            0.3855 PV of O&M        3,790.78        9,216.84 PV of SV        4,967.36            385.54 present worth      23,823.42      28,831.30 PVAF(10%)(years-1) 3.16986 5.75902 EUAC        7,515.61        5,006.29 Capitalised cost    238,234.20    288,313.00

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