The estimated capital investment and the annual expenses) for four alternative designs of a diesel-powered air compressor are shown below, as well as the estimated market value for each design at the end of the common five-year useful life. The study period is five years, and the MARR is 20% per year. One of the designs must be selected for the compressor, and each design provides the same level of service. On the basis of this information, (a) Determine the preferred design alternative, using the IRR method (b) Show that the FW method (i = MARR), using the incremental analysis procedure, results in the same decision. Design Alternative D1 D2 D3 D4 Capital investment $100,000 $140,600 $148,200 $122,000 Annual expenses 29,000 16,900 14,800 22,100 Useful life (years) 5 5 5 5 Market value 10,000 14,000 25,600 14,000

The estimated capital investment and the annual expenses) for four alternative designs of a diesel-powered air compressor are shown below, as well as the estimated market value for each design at the end of the common five-year useful life. The study period is five years, and the MARR is 20% per year. One of the designs must be selected for the compressor, and each design provides the same level of service. On the basis of this information, (a) Determine the preferred design alternative, using the IRR method (b) Show that the FW method (i = MARR), using the incremental analysis procedure, results in the same decision. Design Alternative D1 D2 D3 D4 Capital investment $100,000 $140,600 $148,200 $122,000 Annual expenses 29,000 16,900 14,800 22,100 Useful life (years) 5 5 5 5 Market value 10,000 14,000 25,600 14,000

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

The estimated capital investment and the annual expenses) for four alternative
designs of a diesel-powered air compressor are shown below, as well as the
estimated market value for each design at the end of the common five-year useful
life. The study period is five years, and the MARR is 20% per year. One of the
designs must be selected for the compressor, and each design provides the same level
of service. On the basis of this information,
(a) Determine the preferred design alternative, using the IRR method
(b) Show that the FW method (i = MARR), using the incremental analysis
procedure, results in the same decision.
Design Alternative
D1
D2
D3
D4
Capital investment $100,000 $140,600 $148,200
$122,000
Annual expenses
29,000
16,900
14,800
22,100
5
5
5
5
Useful life (years)
Market value
10,000
14,000
25,600
14,000

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