Engineering Economic Analysis

Applying PresentWorth Techniques 149

SOL~TION

This problem illustrates staged construction. The aqueduct may be built in a single stage, or in a

smaller first stage followed many years later by a second stage to provide the additional capacity

when needed.

For the Two-Stage Construction

PW of cost=$300 million + 350 million(P /F,6%, 25)

= $300 million + 81.6 million

=$381.6 million

For the Single-Stage Construction

PW of cost=$400 million

The two-stage construction has a smaller present worth of cost and is the preferred construc-

tion plan.

A purchasing agent is considering the purchase of some new equipment for the mailroom. Two

different manufacturers have provided quotations. An analysis of the quotations indicates the

following:

Manufacturer

Speedy

Allied

Cost

$1500

1600

Useful Life

(years)

5

5

End-of-Useful..Life

Salvage Value

$200

325

The equipment of both manufacturers is expected to perform at the desired level of (fixed)output.
For a 5-year analysis period, which manufacturer's equipment should be selected? Assume 7%
interest and equal maintenance costs.
I"
,SOLUTION'I",

For fixed output, the criterion is to minimize the present worth of cost.

Speedy

PW of cost ..:..1500 - 200(Pj F,7%!,5)

= 1500 - 200(0.7130)

=:J?Op - J~3=-$l357

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