Engineering Economic Analysis

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Problems 269

Using an MARR of 15% and a rate of return analysis,

which alternative, if any, should be selected?

8-33 A firm must decide which of three alternatives to

adopt to expand its capacity. The firm wishes a mini-

mum annual profit of 20% of the initial cost of each

separable increment of investment.. Any money not

invested in capacity expansion can be invested else-

where for an annual yield of 20% of initial cost.

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Alt.

A

B

C

Initial Cost

$100,000

300,000

500,000

Annual Profit

$30,000

66,000

80,000

Profit Rate

30%

22%

16%

Which alternative should be selected? Use a rate of

return analysis.

8-34 The New England Soap Company is considering

adding some processing equipment to the plant to aid-

in the removal of impurities from some raw materials.

By adding the processing equipment, the firm can pur-

chase lower-grade raw material at reduced cost and

upgrade it for use in its products.

Four different pieces of processing equipment

are being considered:

The company can obtain a 15% annual return on its'

investment in other projects and is willing to invest

money on the processing equipment only as long as_

it can obtain 15% annual return on each increment of

money invested. Which one, if any, of the alternatives

should be selected? Use a rate of return analysis.

8-35 Build a spreadsheet to find the EAC of each roof in

.II. Problem 8-28. Use the GOAL SEEK tool of Excel tofind the IRR of the incremental investment.

8-36 Build a spreadsheet to find the EAW of each lawn-

JI.. mower in Problem 8-29. Use the GOAL SEEK tool ofExcel to find the IRR of the incremental investment.

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8-31 The Croc Co. is considering a new milling machine

from among three alternatives:

Alternative

Deluxe Regular Economy

First cost $220,000 $125,000 $75,000

Annual benefit 79,000 43,000 28,000

Maintenance and 38,000 13,000 8,000

L. operating costs
Salvage value 16,000 6,900 3,000

All machines have a life of 10 years, and MARR =

15%. Using incremental rate of return analysis, which

alternative, if any, should the company choose?

8-32 Wayward Airfreight, Inc. has asked you to rec-

ommend a new automatic parcel sorter. You have

obtained the following bids:

SHIP-R SORT-Of U-SORT-M

First cost $184,000 $235,000 $180,000

Salvage value 38,300 44,000 14,400

Annual benefit 75,300 89,000 68,000

Yearly maintenance 21,000 21,000 12,000

and operating cost

Useful life, in years^777

A B C D

Initial investment $10,000 $18,000 $25,000 $30,000

Annual saving 4,000 6,000 7,500 9,000

in materials

costs

Annual operating 2,000 3,000 3,000 4,000

cost