ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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# Economic Analysis of New Equipment Investment

## Problem Statement
You are considering investing $84,000 in new equipment. You estimate that the net cash flows will be $17,000 during the first year, but will increase by $500 per year the next year and each year thereafter. The equipment is estimated to have a 9-year service life and a net salvage value of $12,000 at that time. Assume an interest rate of 6%.

### Objectives:
(a) Determine the annual capital cost (ownership cost) for the equipment.
(b) Determine the equivalent annual savings (revenues).

### Factor and Value Table:
Below is the provided table that includes various factors used to calculate present worth, future value, sinking fund factor, and others. The values are given for an interest rate of 6% over periods from 1 to 10 years.

| \( N \) | \text{Single Payment} Compound Amount Factor \( (F/P, i, N) \) | \text{Present Worth Factor} \( (P/F, i, N) \) | \text{Compound Amount Factor} \( (F/A, i, N) \) | \text{Equal Payment Series} Sinking Fund Factor \( (A/F, i, N) \) | \text{Present Worth Factor} \( (P/A, i, N) \) | \text{Capital Recovery Factor} \( (A/P, i, N) \) | \text{Gradient Series} Compound Amount Factor \( (F/A, G, i, N) \) | \text{Gradient Uniform Payment Series} \( (A/G, i, N) \) | \text{Gradient Present Worth} \( (P/G, i, N) \) |
|---|---|---|---|---|---|---|---|---|---|
| 1 | 1.0600 | 0.9434 | 1.0000 | 1.0000 | 0.9434 | 1.0600 | 0.0000 | 0.0000 | 0.0000 |
| 2 | 1.1236 | 0.8900 | 2.0600 | 0.4854 | 1.8334 | 0.5480 | 1.0600 | 0.4854 | 0.8900 |
|
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Transcribed Image Text:# Economic Analysis of New Equipment Investment ## Problem Statement You are considering investing $84,000 in new equipment. You estimate that the net cash flows will be $17,000 during the first year, but will increase by $500 per year the next year and each year thereafter. The equipment is estimated to have a 9-year service life and a net salvage value of $12,000 at that time. Assume an interest rate of 6%. ### Objectives: (a) Determine the annual capital cost (ownership cost) for the equipment. (b) Determine the equivalent annual savings (revenues). ### Factor and Value Table: Below is the provided table that includes various factors used to calculate present worth, future value, sinking fund factor, and others. The values are given for an interest rate of 6% over periods from 1 to 10 years. | \( N \) | \text{Single Payment} Compound Amount Factor \( (F/P, i, N) \) | \text{Present Worth Factor} \( (P/F, i, N) \) | \text{Compound Amount Factor} \( (F/A, i, N) \) | \text{Equal Payment Series} Sinking Fund Factor \( (A/F, i, N) \) | \text{Present Worth Factor} \( (P/A, i, N) \) | \text{Capital Recovery Factor} \( (A/P, i, N) \) | \text{Gradient Series} Compound Amount Factor \( (F/A, G, i, N) \) | \text{Gradient Uniform Payment Series} \( (A/G, i, N) \) | \text{Gradient Present Worth} \( (P/G, i, N) \) | |---|---|---|---|---|---|---|---|---|---| | 1 | 1.0600 | 0.9434 | 1.0000 | 1.0000 | 0.9434 | 1.0600 | 0.0000 | 0.0000 | 0.0000 | | 2 | 1.1236 | 0.8900 | 2.0600 | 0.4854 | 1.8334 | 0.5480 | 1.0600 | 0.4854 | 0.8900 | |
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