Compare the projects based on the present worth.
Explanation of Solution
Table -1 shows the cash flow of different projects.
Table -1
Projects | C | D |
First cost (C) | -40,000 | -32,000 |
Operating cost (MO) per year | -7,000 | -3,000 |
Increasing operating cost (IO) per year | -1,000 | - |
Salvage value (SV) | 9,000 | 500 |
Time period (n) | 10 | 5 |
MARR (i) is 10%.
The present worth of project C (PWC) can be calculated as follows:
The present worth of project C is -$102,433.48.
The time period for project C should equate with project time period B. Thus, all the cash flows are repeated for other five years. The time period (n1) is 10 years and time period 2 (n2) is five years.
Present worth of project D (PWD) can be calculated as follows:
Present worth of project D is -69,800.14. Since the present worth of project D is greater than project C, select project D.
Want to see more full solutions like this?
Chapter 5 Solutions
Engineering Economy
- Principles of Economics (12th Edition)EconomicsISBN:9780134078779Author:Karl E. Case, Ray C. Fair, Sharon E. OsterPublisher:PEARSONEngineering Economy (17th Edition)EconomicsISBN:9780134870069Author:William G. Sullivan, Elin M. Wicks, C. Patrick KoellingPublisher:PEARSON
- Principles of Economics (MindTap Course List)EconomicsISBN:9781305585126Author:N. Gregory MankiwPublisher:Cengage LearningManagerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage LearningManagerial Economics & Business Strategy (Mcgraw-...EconomicsISBN:9781259290619Author:Michael Baye, Jeff PrincePublisher:McGraw-Hill Education