Engineering Economy
Engineering Economy
8th Edition
ISBN: 9780073523439
Author: Leland T Blank Professor Emeritus, Anthony Tarquin
Publisher: McGraw-Hill Education
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Chapter 6, Problem 23P

(a)

To determine

Calculate the equivalent annual worth.

(a)

Expert Solution
Check Mark

Explanation of Solution

Table -1 shows the cash flow of different models.

Table -1

Models12
Price (P)-30,000-2,000
AOC (MO) per year-1,000-150
Salvage value (SV)8,000 
Number of pallet (PA)500800
Cost per pallet (CP)-10-10
Wage (W)-32,000-55,000
Time period (n)124
Interest  (i)8%8%

Pallets are purchased every 2 years once.

The equivalent annual worth of project 1 (AW1) can be calculated as follows:

AW1=(C(i(1+i)n(1+i)n1)+MO+SV(i(1+i)n1)+W+(PA×CP)(1(1+i)2+1(1+i)4+1(1+i)6+1(1+i)8+1(1+i)10+1)(i(1+i)n(1+i)n1))=(30,000(0.08(1+0.08)12(1+0.08)121)1,000+8,000(0.08(1+0.08)121)32,000+(500×10)(1(1+0.08)2+1(1+0.08)4+1(1+0.08)6+1(1+0.08)8+1(1+0.08)10+1)(0.08(1+0.08)12(1+0.08)121))=(30,000(0.08(2.51817)2.518171)+8,000(0.082.518171)33,0005,000(11.1664+11.360489+11.586874+11.85093+12.158925+1)(0.08(2.51817)2.518171))=(30,000(0.201451.51817)+8,000(0.081.51817)33,0005,000(0.857339+0.735029+0.630169+0.540269+0.463193+1)(0.201451.51817))=(30,000(0.132693)+8,000(0.052695)33,0005,000(4.225999)(0.132693))=(3,980.79+421.5633,0002,803.8)=39,363.03

The annual worth of the project 1 is -$39,363.03.

Number of electric pallet mover (N) is 2. The equivalent annual worth of project 2 (AW2) can be calculated as follows:

AW2=((N)C(i(1+i)n(1+i)n1)+(N)MO+W+(PA×CP)(1+1(1+i)2)(i(1+i)n(1+i)n1))=(2(2,000)(0.08(1+0.08)4(1+0.08)41)+2(150)55,000+(800×10)(1+1(1+0.08)2)(0.08(1+0.08)4(1+0.08)41))=(4,000(0.08(1.360489)1.3604891)30055,0008,000(1+11.1664)(0.08(1.360489)1.3604891))=(4,000(0.1088390.360489)55,3008,000(1+0.857339)(0.1088390.360489))=4,000(0.30192)55,30014,858.712(0.30192)=1,207.6855,3004,486.14=60,993.82

The annual worth of the project 2 is -$38,699.56.

Since the annual worth of the project 1 is greater than the project 2, select the project 1.

(b)

To determine

Calculate the annual worth using spreadsheet.

(b)

Expert Solution
Check Mark

Explanation of Solution

The annual worth of the project 1 and 2 is calculated by using spreadsheet as follows:

Engineering Economy, Chapter 6, Problem 23P

Since the annual worth of the project 1 (Forklift) is greater than the project 2 (Walkies), select the project 1.

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