Engineering Economic Analysis

I

Analysis Period 189

of each alternative throughout the analysis period and, in addition, see what differences

there might be in salvage values, and so forth, at the end of the analysis period.

Suppose that Alternative 1 has a 7-year life and a salvage value at the end of that time. The

replacement cost at the end of 7 years may be more or less than the original cost. If the replacement

is retired prior to 7 years, it will have a terminal value that exceeds the end-of-life salvage value.

Alternative 2 has a 13-year life and a terminal value wheneverit isretired. If the situation indicates

that 10 years is the proper analysis period, set up the equations to properly compute the EUAC

for each alternative.

Alternative 1

Salvage TerminalValueat

Value End of 10th Year

f f

O~1-2~3---:::-4~5~6~1---8---9-1O-11---12-13---14

l

,jnitii1 R"Plae<meni

l

.. i

Cost Cost II

I 7~yearLife I 7-yearLifeI

Altemative2 Terminal Value at

End of 1OthYear

f

O~1-2-3___4~5 6" 7~8 9~10 11---12-13

l

1'titii1

Cost

,'

13-year Life I

I

--I

II

10-year Analysis Period

Altel'native.l

'.

EUAC1 [Initial cost + (Replacetnent cost- Salvage value)(Pj F, i, 7,)

• (Terminalvalue)(PjF, i, lO)](AjP, i, 10)

.

I

r= Alterp.ative2

:,.=' I: ~~ f1J1C"2,,.DIJit!~co~t-~~Ji~l£k.!W.J~Ic.P ~JPl =