A battery manufacturing plant has been ordered to cease discharging acidic waste
ID: 2763226 • Letter: A
Question
A battery manufacturing plant has been ordered to cease discharging acidic waste liquids containing mercury into the city sewer system. As a result, the firm must now adjust the pH and remove the mercury from its waste liquids. Three firms have provided quotations on the necessary equipment. An analysis of the quotations provided the following table of costs.
Installed Cost
Annual Operating Cost
Annual Income from Mercury Recovery
Salvage Value
Foxhill Instrument
$35,000
$8,000
$2,000
$20,000
Quicksilver
40,000
7,000
2,200
0
Almaden
100,000
2,000
3,500
0
If the installation can be expected to last 20 years and MARR is 8%, which equipment should be purchased based on Present Worth Analysis? (Justify answer)
BidderInstalled Cost
Annual Operating Cost
Annual Income from Mercury Recovery
Salvage Value
Foxhill Instrument
$35,000
$8,000
$2,000
$20,000
Quicksilver
40,000
7,000
2,200
0
Almaden
100,000
2,000
3,500
0
Explanation / Answer
Equipment 1 :Net annual cost = 8000 - 2000 = 6000
Present value of Cash flow =(PVAF@8%,20 *Net annual cost ) - (PVF@8%,20 *Salvage recovered)
= (9.81815* 6000) - (.21455* 20000)
= 58908.9- 4291
= 54617.9
Total cost = 35000 + 54617.9 = 89617.9
Equipment 2 :Net annual cost = 7000 - 2200 = 4800
Present value = 9.81815 * 4800= 47127.12
Total cost = 47127.12 + 40000 = 87127.12
Equipmnet 3 Annual cost = 2000 - 3500 = -1500 Income
Present value = 9.81815 * -1500 = $ - 14727.23
Total cost = 100000 - 14727.23 = 85272.77
since total cost is lowest under eqipment 3 , equipment from Almaden should be purchased.
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