The Asia Corporation manufactures compressors for commercial airconditioning systems. A new compressor design is being evaluated as a potential replacement for the most frequently used unit. The new design involves major changes that have the expected advantage of better efficiency. From the perspective of a typical user, the new compressor would have an increased investment of $8,600 relative to the present unit and an annual expense savings dependent upon the extent to which the design goal is met in actual operations. Estimates by the multidisciplinary design team of the new compressor achieving four levels (percentages) of the efficiency design goal and the probability and annual expense savings at each level are as follows: Based on a before-tax analysis (MARR =18% per year, analysis period of 6 years, and a salvage value of zero) and E(PW) as the decision criterion, is the new compressor design economically preferable to the current unit?
The Asia Corporation manufactures compressors for commercial airconditioning systems. A new compressor design is being evaluated as a potential replacement for the most frequently used unit. The new design involves major changes that have the expected advantage of better efficiency. From the perspective of a typical user, the new compressor would have an increased investment of $8,600 relative to the present unit and an annual expense savings dependent upon the extent to which the design goal is met in actual operations. Estimates by the multidisciplinary design team of the new compressor achieving four levels (percentages) of the efficiency design goal and the probability and annual expense savings at each level are as follows:
Based on a before-tax analysis (MARR =18% per year, analysis period of 6 years, and a salvage value of zero) and E(PW) as the decision criterion, is the new compressor design economically preferable to the current unit?
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