(a):
Calculate the annual worth.
(a):

Explanation of Solution
Defender: Market value (MV) is $7,000. Upgrade cost (UC) is $22,000. Annual operating cost (AC) is $27,000. Salvage value (SV) is $21,000. Time period (n) is 3. Interest rate (i) is 10%.
Challenger: First cost (FC) is $65,000. Annual operating cost (AC) is $14,000. Salvage value (SV) is $123,000. Time period (n) is 3. Interest rate (i) is 10%.
Annual worth (AV) of the defender can be calculated as follows:
The annual worth of the defender is -$35,035.96.
Annual worth (AV) of the challenger can be calculated as follows:
The annual worth of the challenger is -$33,188.83. Since the annual worth of cost for challenger is lesser than the defender, replace the defender with the challenger.
(b):
Calculate the annual worth for 2 year.
(b):

Explanation of Solution
Annual worth (AV) of the challenger can be calculated as follows:
The annual worth of the challenger is -$40,499.98. Since the annual worth of 2 year cost for challenger is greater than the defender for 3 year cost, retain the defender.
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Chapter 11 Solutions
ENGR.ECONOMY CUSTOM FOR TAMU ISEN 667
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