ENGINEERING ECONOMY DIGITAL ACCESS
ENGINEERING ECONOMY DIGITAL ACCESS
8th Edition
ISBN: 2810022611683
Author: Blank
Publisher: MCG
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Chapter 6, Problem 23P

(a)

To determine

Calculate the equivalent annual worth.

(a)

Expert Solution
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Explanation of Solution

Table -1 shows the cash flow of different models.

Table -1

Models12
Price (P)-30,000-2,000
AOC (MO) per year-1,000-150
Salvage value (SV)8,000 
Number of pallet (PA)500800
Cost per pallet (CP)-10-10
Wage (W)-32,000-55,000
Time period (n)124
Interest  (i)8%8%

Pallets are purchased every 2 years once.

The equivalent annual worth of project 1 (AW1) can be calculated as follows:

AW1=(C(i(1+i)n(1+i)n1)+MO+SV(i(1+i)n1)+W+(PA×CP)(1(1+i)2+1(1+i)4+1(1+i)6+1(1+i)8+1(1+i)10+1)(i(1+i)n(1+i)n1))=(30,000(0.08(1+0.08)12(1+0.08)121)1,000+8,000(0.08(1+0.08)121)32,000+(500×10)(1(1+0.08)2+1(1+0.08)4+1(1+0.08)6+1(1+0.08)8+1(1+0.08)10+1)(0.08(1+0.08)12(1+0.08)121))=(30,000(0.08(2.51817)2.518171)+8,000(0.082.518171)33,0005,000(11.1664+11.360489+11.586874+11.85093+12.158925+1)(0.08(2.51817)2.518171))=(30,000(0.201451.51817)+8,000(0.081.51817)33,0005,000(0.857339+0.735029+0.630169+0.540269+0.463193+1)(0.201451.51817))=(30,000(0.132693)+8,000(0.052695)33,0005,000(4.225999)(0.132693))=(3,980.79+421.5633,0002,803.8)=39,363.03

The annual worth of the project 1 is -$39,363.03.

Number of electric pallet mover (N) is 2. The equivalent annual worth of project 2 (AW2) can be calculated as follows:

AW2=((N)C(i(1+i)n(1+i)n1)+(N)MO+W+(PA×CP)(1+1(1+i)2)(i(1+i)n(1+i)n1))=(2(2,000)(0.08(1+0.08)4(1+0.08)41)+2(150)55,000+(800×10)(1+1(1+0.08)2)(0.08(1+0.08)4(1+0.08)41))=(4,000(0.08(1.360489)1.3604891)30055,0008,000(1+11.1664)(0.08(1.360489)1.3604891))=(4,000(0.1088390.360489)55,3008,000(1+0.857339)(0.1088390.360489))=4,000(0.30192)55,30014,858.712(0.30192)=1,207.6855,3004,486.14=60,993.82

The annual worth of the project 2 is -$38,699.56.

Since the annual worth of the project 1 is greater than the project 2, select the project 1.

(b)

To determine

Calculate the annual worth using spreadsheet.

(b)

Expert Solution
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Explanation of Solution

The annual worth of the project 1 and 2 is calculated by using spreadsheet as follows:

ENGINEERING ECONOMY DIGITAL ACCESS, Chapter 6, Problem 23P

Since the annual worth of the project 1 (Forklift) is greater than the project 2 (Walkies), select the project 1.

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Can you show me the answers for parts a and b? Thanks.
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