Engineering Economic Analysis

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Payback Period 281

Alternative A

Paybackperiod is the period of time required for the profit or other benefits of an investment to

equal the cost of the investment.In the first 2 years,only$400of the$1000costis recovered.The

remaining $600 cost is recovered in the first half of Year3.Thus the payback period for Alt. Ais

2.5 years.

AlternativeB

Since the annualbenefits are uniform, the payback period is simply

$2783/$1200 per year - 2.3 years

To minimize the payback period, chooseAlt.B.

A firm is tryingto decide which of two weighing scales it should install to check a package-filling

operation in the plant. If both scales have a 6-year life, which one should be selected? Assume an

8% interest rate..

Alternative

Atlas scale

Tom Thumb scale

Cost

$2000

3000

Uniform Annual

Benefit

$450

600

End-of-Useful-Life

Salvage Value

$100

700

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Atlas Scale

Cost

Payback period = Uniform annual benefit

2000 = 4.4 years

= 450

TomThumb Scale

Cost

Payback period ~Uniform annualbenefir::! =

_3000

-II 600!I... 5 years=-= 0; Ii:

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