Engineering Economic Analysis

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172 PRESENTWORTH ANALYSIS

machine will have maintenance and operating costs

of $4000 a year and will provide an annual benefit of

$89,000. CompanyBcharges $205,000 to deliver and

install the device. CompanyBhas estimated mainte-

nance and operating costs of the press at $4300 a

year, with an annual benefit of $86,000. Both ma-

chines will last 5 years and can be sold for $15,000

for the scrap metal. Use an interest rate of 12%. Which

machine should your company purchase, based on the

forgoing data?

5-56 A battery manufacturing plant has been ordered to

cease discharging acidic waste liquids containing

mercury into the city sewer system. As a result, the

firm must now adjust the pH and remove the mer-

cury from its waste liquids. Three "firmshave provided

quotations on the necessary equipment. An analysis

of the quotations provided the following table of costs.

If the installation can be expected to last 20 years

and money is worth 7%, which equipment should be

purchased? (Answer:Almaden)

5-57 A firm is considering three mutually exclusive alter-

natives as part of a production improvement program.

The alternatives are:

The salvage value at the end of the useful life of each

alternative is zero. At the end of 10 years, Alternative

Acould be replaced with anotherAwith identical cost

and benefits. The maximum attractive rate of return

is 6%. Which alternative should be selected?

5-58 A steam boiler is needed as part of the design of a
new plant. The boiler can be fired by natural gas, fuel
oil, or coal. A decision must be made on which fuel to
use. An analysis of the costs shows that the installed

cost, with all controls, would be least for natural gas at

$30,000; for fuel oil it would be $55,000; and for coal

it would be $180,000. If natural gas is used rather than

fuel oil, the annual fuel cost will increase by $7500.

If coal is used rather than fuel oil, the annual fuel cost

will be $15,000 per year less. Assuming 8% interest, a

20-year analysis period, and no salvage value, which

is the most economical installation?

5-59 Austin General Hospital is evaluating new office

equipment offered by three companies. In each case

the interest rate is 15% and the useful life of the

equipment is 4 years. Use NPW analysis to determine

the company from which you should purchase the

equipment.

5-60 The following costs are associated" with three

tomato-peeling machines being considered for use in

a canning plant.

If the canning company uses an interest rate of 12%,

which is the best alternative? Use NPW to make yom

decision.(Note:Consider the least common multiple

as the study period.)

5-61 A railroad branch line to a missile site is to be con.

structed. It is expected that the railroad line will be

used for 15 years, after which the missile site will be

removed and the land turned back to agricultural use

The railroad track and ties will be removed at tha'

time.

In building the railroad line, either treated OJ

untreated wood ties may be used. Treated ties have ar

installed cost of $6 and a 1O-year life; untreated tie!

are $4.50 with a 6-year life. If at the end of 15 yean

Annual

Income

Annual from

Installed Operating Mercury Salvage

Bidder Cost Cost Recovery Value

Foxhill $ 35,000 $8000 $2000 $20,000

Instrument

Quicksilver 40,000^700022000

Almaden 100,000 2000 3500 0

A B C

Installed cost $10,000 $15,000 $20,000

Uniform annual $1,625 $1,530 $1,890

benefit

Useful life,^102020

in years

Company Company Company

A B C

First cost $15,000 $25,000 $20,000

Maintenanceand 1,600 400 900

operating costs

Annual benefit 8,000 13,000 11,0

Salvagevalue 3,000 6,000 4,500

Machine Machine Machine

A B C'

First cost $52,000 " $63,000 $67,000

Mainnance and $15,000 $9,000 $12,000

operating costs

Annual benefit $38,000 $31,000. $37,000

Salvage value $13,000 $19,000 $22,000

U sefullife,^4612

in years