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 php 26,000 php 800 Php 2,000 Php 25,000 Brand O Cost and Installation Annual Maintenance Cost per year Salvage Value Equipment Repair savings Useful life, years 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, php. 35,000, 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. php 36,000 php 300 php 3,000 Php 35,000 6 10 Annual worth analysis of surge protector alternatives, case study. | MARR =15% Brand M Brand O Repair Savings Repair Savings Investment and Salvage 26,000 Annual Maintenanc Investment and Annual Maintenanc Salvage 36,000 e e Year 800 25,000 25,000 300 35,000 35.000 800 800 300 300 3 25,000 35,000 35,000 35,000 35,000 35,000 35,000 35,000 35,000 25.000 25,000 25,000 4 800 800 300 5 300 2,000 800 300 7 300 300 300 300 300 10 3,000 7,025 AW 35,000 element Total AW Case Study Exercises 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? php27,675

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 php 26,000 php 800 Php 2,000 Php 25,000 Brand O Cost and Installation Annual Maintenance Cost per year Salvage Value Equipment Repair savings Useful life, years 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, php. 35,000, 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. php 36,000 php 300 php 3,000 Php 35,000 6 10 Annual worth analysis of surge protector alternatives, case study. | MARR =15% Brand M Brand O Repair Savings Repair Savings Investment and Salvage 26,000 Annual Maintenanc Investment and Annual Maintenanc Salvage 36,000 e e Year 800 25,000 25,000 300 35,000 35.000 800 800 300 300 3 25,000 35,000 35,000 35,000 35,000 35,000 35,000 35,000 35,000 25.000 25,000 25,000 4 800 800 300 5 300 2,000 800 300 7 300 300 300 300 300 10 3,000 7,025 AW 35,000 element Total AW Case Study Exercises 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? php27,675

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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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 php 26,000 php 800 Php 2,000 Php 25,000 Brand O Cost and Installation Annual Maintenance Cost per year Salvage Value Equipment Repair savings Useful life, years 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, php. 35,000, 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. php 36,000 php 300 php 3,000 Php 35,000 6 10 Annual worth analysis of surge protector alternatives, case study. | MARR =15% Brand M Brand O Repair Savings Repair Savings Investment and Salvage 26,000 Annual Maintenanc Investment and Annual Maintenanc Salvage 36,000 e e Year 800 25,000 25,000 300 35,000 35.000 800 800 300 300 3 25,000 35,000 35,000 35,000 35,000 35,000 35,000 35,000 35,000 25.000 25,000 25,000 4 800 800 300 5 300 2,000 800 300 7 300 300 300 300 300 10 3,000 7,025 AW 35,000 element Total AW Case Study Exercises 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? php27,675

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