Engineering Economic Analysis

180 ANNUAL CASH FLOW ANALYSIS

SOlUTiQ~N:~{ ..

lithe value for(AI F, i, n)from Equation 6-2 is substituted into Equation 6-1, we obtain:

EUAC= P(AI P, i, n)- S(AI P, i, n)+Si

=(P - S)(AI P, i, n)+ Si

=(1000- 200)(AI P,7%,10) + 200(0.07)

= 800(0.1424) + 14 = 113.92 + 14 = $127.92 (6-4)

This method computes the annual cost of the $800 decline in value during the 10 years, plus

interest on the $200 tied up in the furniture as the salvage value.

When there is an initial disbursementPfollowed by a salvage value S, the annu"alcost may

be computed in the three different ways introduced in Example 6-2.

EUAC=P(AI P, i, n)- S(AI F, i, n)

EUAC=(P - S)(Aj F, i, n)+Pi

EUAC=(P - S)(AI P, i, n)+Si

(6-1)

(6-3)

(6-4).

Each of the three calculations gives the same results. In practice, the first and third methods

are most commonlyused. The EUAC calculatedin Equations6-1, 6-3, and 6-41salsoknown

as thecapital recovery costof a project.

Bill owned a car for 5 years; One day he wondered what his uniform annual cost for maintenance

and repairs had been. He assembled the following data:

Maintenance and Repair

Cost for Year

$ 45

90

180

135

225

Year

1

2

3

4

5

Compute the equivalent uniform annual cost (EUAC) assuming 7% interest and end-of-year

disbursements. ~

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LL