12.5 (LG 12.2) A chemical plant is considering installing a new water purificationsystem that costs $21 500. The expected service life of the system is 10 yearsand the salvage value is computed using the declining-balance method with adepreciation rate of 20 percent. The operating and maintenance costs are esti-mated to be $5 per hour of operation. The expected savings are $10 per operat-ing hour.a. Find the annual worth of the new water purification system if the currentoperating hours are 1500 per year, on average. The MARR is 10 percent.b. What is the break-even level of operating hours? Construct a graph showingthe annual worth for various levels of operating hours.

The Break-even level refers to the point where the revenue and total costs are the same.

Answered: e annual worth of the new water…

Business

Finance

e annual worth of the new water purification system

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

Problem 1PS

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Question

12.5 (LG 12.2) A chemical plant is considering installing a new water purification
system that costs $21 500. The expected service life of the system is 10 years
and the salvage value is computed using the declining-balance method with a
depreciation rate of 20 percent. The operating and maintenance costs are esti-
mated to be $5 per hour of operation. The expected savings are $10 per operat-
ing hour.
a. Find the annual worth of the new water purification system if the current
operating hours are 1500 per year, on average. The MARR is 10 percent.
b. What is the break-even level of operating hours? Construct a graph showing
the annual worth for various levels of operating hours.

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