An engineer has designed 2 alternative systems to cater for customer's plant operation. System 1 will need initial investment of $150,000 and will have an annual operating cost of $20,000 with salvage price of $5,000 after 4 years. System 2 will need an investment of $180,000 and the annual operating cost will be $15,000. System can be salvaged for $8,000 after 6 years. At an interest rate of 10% per year, which system should be proposed by the engineer on the basis of a present worth analysis? Use equations to solve this problem.

An engineer has designed 2 alternative systems to cater for customer's plant operation. System 1 will need initial investment of $150,000 and will have an annual operating cost of $20,000 with salvage price of $5,000 after 4 years. System 2 will need an investment of $180,000 and the annual operating cost will be $15,000. System can be salvaged for $8,000 after 6 years. At an interest rate of 10% per year, which system should be proposed by the engineer on the basis of a present worth analysis? Use equations to solve this problem.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 10P

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