A new piece of equipment is expected to cost $30,000, will require $6,000 per ye

Question

A new piece of equipment is expected to cost $30,000, will require $6,000 per year in maintenance costs, and is expected to save $10,000 per year in labor costs. If the equipment has a salvage value of $5,000 and a lifetime of 10 years, what will the Equivalent Annual Worth (EUAW) be for this unit? Assume your company uses an MARR of 5%. Type in your answer to the nearest $50 using the following format, without decimal places: $XXXX. (i.e. $918.17 type in as:$0900 ) Show your work on your worksheet.

Explanation / Answer

Answer

Figures in $

Year

Maintenance costs

Labour costs saving

Initial cost and salvage value

Cash flow

Disc Rate : 5%

Present value

A

B

C

D

E

A+B+C

D*E

0

-30000

-30000

1.00

-30000.00

1

-6000

10000

4000

0.95

3809.52

2

-6000

10000

4000

0.91

3628.12

3

-6000

10000

4000

0.86

3455.35

4

-6000

10000

4000

0.82

3290.81

5

-6000

10000

4000

0.78

3134.10

6

-6000

10000

4000

0.75

2984.86

7

-6000

10000

4000

0.71

2842.73

8

-6000

10000

4000

0.68

2707.36

9

-6000

10000

4000

0.64

2578.44

10

-6000

10000

5000

9000

0.61

5525.22

Cumulative discount factor (a)

7.72

Net Present value (b)

3956.51

Equivalent Annual Worth (b/a)

512.39

Answer : The Equivalent Annual Worth (EUAW) be for this unit is $0500

Figures in $

Year

Maintenance costs

Labour costs saving

Initial cost and salvage value

Cash flow

Disc Rate : 5%

Present value

A

B

C

D

E

A+B+C

D*E

0

-30000

-30000

1.00

-30000.00

1

-6000

10000

4000

0.95

3809.52

2

-6000

10000

4000

0.91

3628.12

3

-6000

10000

4000

0.86

3455.35

4

-6000

10000

4000

0.82

3290.81

5

-6000

10000

4000

0.78

3134.10

6

-6000

10000

4000

0.75

2984.86

7

-6000

10000

4000

0.71

2842.73

8

-6000

10000

4000

0.68

2707.36

9

-6000

10000

4000

0.64

2578.44

10

-6000

10000

5000

9000

0.61

5525.22

Cumulative discount factor (a)

7.72

Net Present value (b)

3956.51

Equivalent Annual Worth (b/a)

512.39

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