Annual worth analysis of surge protector alternatives, case study. MARR =15% Brand M Brand O Annual Maintenance Repair Savings Annual Repair Savings Investment Investment and Salvage 26,000 and Salvage 36,000 Maintenance Year 25,000 25,000 25,000 25,000 25,000 25,000 300 35,000 35,000 35,000 1 800 2 800 300 3 800 300 35,000 35,000 35,000 35,000 35,000 35,000 35,000 35,000 php27,675 4 800 300 800 300 6. 2,000 800 300 7 300 8 300 300 10 3,000 7,025 300 AW element Total AW 300 1. Draw a graph of the current expected cost reductions for repairs and maintenance, considering protectors last 7 additional years. 2. With these latest forecasts, what's the Brand O protectors' recalculated AW? Using the old's first cost expense and maintenance cost forecasts. If these figures were made 3 years earlier, was Brand O still the economic choice? 3. How has the capital recovery amount changed for the Brand O protectors with these new estimates?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Annual Worth Analysis
Background and Information
Manny, owner of an automobile battery distributorship in Cainta, Rizal, performed an
economic analysis 3 years ago when he decided to place surge protectors in-line for all his major
pieces of testing equipment. The estimates used and the annual worth analysis at MARR = 15%
are summarized below. Two different manufacturers' protectors were compared.
Brand M
Brand O
php 26,000
php 800
Php 2,000
Php 25,000
php 36,000
php 300
php 3,000
Php 35,000
Cost and Installation
Annual Maintenance Cost per year
Salvage Value
Equipment Repair savings
Useful life, years
6
10
The displayed spreadsheet is the one Manny used to make the decision. Due to its
substantially larger AW value, Brand O was the clear choice. Installed were the Brand O
protectors. It was evident that the maintenance costs and repair savings did not follow (and will
not follow) the estimates made 3 years ago during a rapid review last year (year 3 of operation).
In fact, the cost of the maintenance contract (including quarterly inspection) goes from php300 to
php1200 per year next year and for the next 10 years it will then increase 10 percent per year. Also,
php35,000, php32,000, and php28,000, as best as Manny can determine, were the repair savings
for the last 3 years. He believes that savings will subsequently decrease by php2000 per year.
Ultimately, these 3-year-old protectors are now worth nothing on the market, so the 7-year rescue
is zero, not php3000.
Transcribed Image Text:Annual Worth Analysis Background and Information Manny, owner of an automobile battery distributorship in Cainta, Rizal, performed an economic analysis 3 years ago when he decided to place surge protectors in-line for all his major pieces of testing equipment. The estimates used and the annual worth analysis at MARR = 15% are summarized below. Two different manufacturers' protectors were compared. Brand M Brand O php 26,000 php 800 Php 2,000 Php 25,000 php 36,000 php 300 php 3,000 Php 35,000 Cost and Installation Annual Maintenance Cost per year Salvage Value Equipment Repair savings Useful life, years 6 10 The displayed spreadsheet is the one Manny used to make the decision. Due to its substantially larger AW value, Brand O was the clear choice. Installed were the Brand O protectors. It was evident that the maintenance costs and repair savings did not follow (and will not follow) the estimates made 3 years ago during a rapid review last year (year 3 of operation). In fact, the cost of the maintenance contract (including quarterly inspection) goes from php300 to php1200 per year next year and for the next 10 years it will then increase 10 percent per year. Also, php35,000, php32,000, and php28,000, as best as Manny can determine, were the repair savings for the last 3 years. He believes that savings will subsequently decrease by php2000 per year. Ultimately, these 3-year-old protectors are now worth nothing on the market, so the 7-year rescue is zero, not php3000.
Annual worth analysis of surge protector alternatives, case study.
MARR
=15%
Brand M
Brand O
Repair
Savings
Annual
Annual
Maintenance
Repair
Savings
Investment
and Salvage
26,000
Investment
and Salvage
36,000
Maintenance
Year
35,000
35,000
35,000
35,000
35,000
35,000
35,000
35,000
35,000
35,000
35,000
php27,675
1
800
25,000
25,000
25,000
25,000
25,000
25,000
300
2
800
300
3
800
300
800
300
5
800
300
2,000
800
300
7
300
8
300
9
300
10
3,000
7,025
300
AW element
300
Total AW
1. Draw a graph of the current expected cost reductions for repairs and maintenance, considering
protectors last 7 additional years.
2. With these latest forecasts, what's the Brand O protectors' recalculated AW? Using the old's first
cost expense and maintenance cost forecasts. If these figures were made 3 years earlier, was Brand
O still the economic choice?
3. How has the capital recovery amount changed for the Brand O protectors with these new
estimates?
Transcribed Image Text:Annual worth analysis of surge protector alternatives, case study. MARR =15% Brand M Brand O Repair Savings Annual Annual Maintenance Repair Savings Investment and Salvage 26,000 Investment and Salvage 36,000 Maintenance Year 35,000 35,000 35,000 35,000 35,000 35,000 35,000 35,000 35,000 35,000 35,000 php27,675 1 800 25,000 25,000 25,000 25,000 25,000 25,000 300 2 800 300 3 800 300 800 300 5 800 300 2,000 800 300 7 300 8 300 9 300 10 3,000 7,025 300 AW element 300 Total AW 1. Draw a graph of the current expected cost reductions for repairs and maintenance, considering protectors last 7 additional years. 2. With these latest forecasts, what's the Brand O protectors' recalculated AW? Using the old's first cost expense and maintenance cost forecasts. If these figures were made 3 years earlier, was Brand O still the economic choice? 3. How has the capital recovery amount changed for the Brand O protectors with these new estimates?
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