To find:Whether automated system or the existing labor-intensive system should be preferred to line G.
Answer to Problem 34P
Present worth for labor intensive is less -$432,912than the present worth of automated system which is
Explanation of Solution
Given information:
| LaborintensiveSystem | AutomatedSystem | |
| Initial cost | $0 | $110,000 |
| Installation cost | $0 | $18,500 |
| Firs year O&M cost | $2000 | $4800 |
| Annual increase | $450 | $950 |
| First year labor cost | $72,000 | $47,500 |
| Annual increase | 5% | 5% |
| Salvage value (EOY 15) | 2500 | 20,000 |
Interest rate is
No. of years are
Formula used:
Spreadsheet Function to calculate net present worth
NPV −
CF1:CF2 − Cash flow data range without the initial cost
Calculation:
By using the above-mentioned formula, labor intensive system &automated system’spresent Worth is calculated.
Present worth of labor-intensive system
Present worth of automated system
Present worth for labor intensive is
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Chapter 5 Solutions
ENGR.ECONOMIC ANALYSIS
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