Question

The management of Brawn Engineering is considering three alternatives to satisfy an OSHA requirement for safety gates in the machine shop. Each gate will completely satisfy the requirement, so no combinations need to be considered. The first costs, operating costs, and salvage values over a 5-year planning horizon are shown below. End of Year Gate 1 Gate 2 Gate 3 0 -$19,000 -$24,000 -$15,000 -$6,500 -$5,600 -$4,000 N m -$6,500 -$5,600 -$6,500 -$5,600 -$6,500 -$5,600 -$6,500 + $0-$5,600 + $2,000 -$4,000 -$4,000 -$4,000 $4,000 + $5,000 py Using a present worth analysis with a MARR of 20 %/year, determine the preferred gate.

Answer 1

MARR = 20%

Present worth of Gate 1 = -15000 - 6500 * (P/A, 20%,5)

= -15000 - 6500 * 2.990612

= -34438.98

Present worth of Gate 2 = -19000 - 5600 * (P/A, 20%,5) + 2000 * (P/F, 20%,5)

= -19000 - 5600 * 2.990612 + 2000 * 0.401878

= -34943.67

Present worth of Gate 3 = -24000 - 4000 * (P/A, 20%,5) + 5000 * (P/F, 20%,5)

= -24000 - 4000 * 2.990612 + 5000 * 0.401878

= -33953.06

As the present cost of gate 3 is lowest, it should be selected