E3.10 A company is considering new automated cleaning equipment. The engineer fo
ID: 2743643 • Letter: E
Question
E3.10
A company is considering new automated cleaning equipment. The engineer for the company has been asked to calculate the present worth of the proposed alternative. The initial cost of the machine is $78,000 and the annual saving that will be realized is $24,000. The annual operating cost will be $2,750, annual insurance is $2,200 paid at the beginning of the year, and it will need a scheduled maintenance performed at the end of the third year at a cost of $3,000. The market value at the end of the five year study period is 12.5% of the initial cost. If MARR = 8% what is the present worth of the investment? (Please show work)(Use excel if possible)
$1,613
-$2,187
$2,789
$1,853
A company is considering new automated cleaning equipment. The engineer for the company has been asked to calculate the present worth of the proposed alternative. The initial cost of the machine is $78,000 and the annual saving that will be realized is $24,000. The annual operating cost will be $2,750, annual insurance is $2,200 paid at the beginning of the year, and it will need a scheduled maintenance performed at the end of the third year at a cost of $3,000. The market value at the end of the five year study period is 12.5% of the initial cost. If MARR = 8% what is the present worth of the investment? (Please show work)(Use excel if possible)
Explanation / Answer
a. $1,613
Year
Cash Flow 1
Cash Flow 2
Cash Flow 3
Cash Flow 4
Cumulative Cash Flows (A)
Present Value @ 8% (B)
Present Value of Cash Flows ($)
1
2
3
4
(1+2+3+4)
=1/(1.08^n)
(A*B)
0
(78000.00)
0.00
(2200.00)
0.00
(80200.00)
1.0000
(80200.00)
1
24000.00
(2750.00)
(2200.00)
0.00
19050.00
0.9259
17638.89
2
24000.00
(2750.00)
(2200.00)
0.00
19050.00
0.8573
16332.30
3
24000.00
(2750.00)
(2200.00)
(3000.00)
16050.00
0.7938
12741.01
4
24000.00
(2750.00)
(2200.00)
0.00
19050.00
0.7350
14002.32
5
24000.00
(2750.00)
0.00
9750.00
31000.00
0.6806
21098.08
1612.60
Notes
= 78,000+2,200
=$80,200
2. Cash Inflows at end of Year 1 & Year 2 & Year 4 = Annual Savings - annual operating cost - annual insurance
= 24,000 – 2,750 - 2,200
=$19,050
3. Cash Inflows at end of Year 3 = Annual Savings - annual operating cost - annual insurance - scheduled maintenance
= 24,000 – 2,750 - 2,200 – 3,000
=$16,050
4. Cash Inflows at end of Year 5 = Annual Savings - annual operating cost + scrap value
= 24,000 – 2,750 + (78,000*12.5%)
=$31,000
5. n = Time period
6. Present Value of Investment = Present Value of Cash Flows
=(80200.00)*(1) + 19050.00*(1/1.08^1) + 19050.00*(1/1.08^2) + 16050.00*(1/1.08^3) + 19050.00*(1/1.08^4) + 31000.00*(1/1.08^5)
=$1,613
Year
Cash Flow 1
Cash Flow 2
Cash Flow 3
Cash Flow 4
Cumulative Cash Flows (A)
Present Value @ 8% (B)
Present Value of Cash Flows ($)
1
2
3
4
(1+2+3+4)
=1/(1.08^n)
(A*B)
0
(78000.00)
0.00
(2200.00)
0.00
(80200.00)
1.0000
(80200.00)
1
24000.00
(2750.00)
(2200.00)
0.00
19050.00
0.9259
17638.89
2
24000.00
(2750.00)
(2200.00)
0.00
19050.00
0.8573
16332.30
3
24000.00
(2750.00)
(2200.00)
(3000.00)
16050.00
0.7938
12741.01
4
24000.00
(2750.00)
(2200.00)
0.00
19050.00
0.7350
14002.32
5
24000.00
(2750.00)
0.00
9750.00
31000.00
0.6806
21098.08
1612.60
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