Engineering Economy (17th Edition)
Engineering Economy (17th Edition)
17th Edition
ISBN: 9780134870069
Author: William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher: PEARSON
Question
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Chapter 9, Problem 1P
To determine

Calculate the Annual worth.

Expert Solution & Answer
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Explanation of Solution

Time period is denoted by n and the interest is denoted by i. The annual worth (AW) of defender can be calculated as follows.

AWDefender=Investment(i(1+i)n(1+i)n1)Costmaiintenance(Total miles×Cost per galonMileage)=400(0.15(1+0.15)2(1+0.15)21)8000(15,000×3.510)=6,296   

Annual worth of defender is -$6,296.

The annual worth (AW) of challenger can be calculated as follows.

AWChallenger=Investment(i(1+i)n(1+i)n1)Costmaiintenance(Total miles×Cost per galonMileage)=8,000(0.15(1+0.15)2(1+0.15)21)8000(15,000×3.530)=4,345   

Annual worth of challenger is -$4,345. Since the annual worth of the challenger is greater, replace immediately.

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