Katherine, a biology major at the University of Texas, wants to run for office one day and pretends that she cares about the elderly. She wants to provide meals to elderly care centers, and in order to do so, she needs refrigerators to keep the food in a cold and dry environment. She has two option for mobile refrigerators. Applying annual cash flow techniques (EAUW), and considering a MARR of 8%, which option should she pick? Option 1Option 2Initial cost P, $18,00019,000Annual O&M, $/year5,0008,000Refurbishment cost, $02000 (every 4 years)Salvage value2,0004,000Life, years412

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Asked Nov 5, 2019
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Katherine, a biology major at the University of Texas, wants to run for office one day and pretends that she cares about the elderly. She wants to provide meals to elderly care centers, and in order to do so, she needs refrigerators to keep the food in a cold and dry environment. She has two option for mobile refrigerators. Applying annual cash flow techniques (EAUW), and considering a MARR of 8%, which option should she pick?

 

Option 1

Option 2

Initial cost P, $

18,000

19,000

Annual O&M, $/year

5,000

8,000

Refurbishment cost, $

0

2000 (every 4 years)

Salvage value

2,000

4,000

Life, years

4

12

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Expert Answer

Step 1

Calculation of EAUW for option 1:

Given,

n = 4 years

Salvage Value = $2,000

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Step 2

Calculation of EAUW for option 2:

Given,

n = 12 years

Sa...

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EAUM (-$19,000 $8,000 x (P/A,8%,12) - $2,000 x (P/F, 8%,4) $2,000 x (P/F, 8%,8) - $2,000 x (P/F, 8%,12) +$4,000x (P/F,8%, 12)) x (A/P,8%,12) EAUM (-$19,000 - $8,000 x 7.536 - $2,000 x 0.7350 $2,000 x 0.5403 - $2,000 x 0.3971 +$4,000 x 0.3971) x 0. 1327 EAUM -$8,857.56 or -$8,858

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