Question

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 mercury from its waste liquids. Two firms have provided quotations on the necessary equipment. An analysis of the quotations provided the following table of costs. Bidder Installed Cost Annual Annual Income from Salvage Value maintenance Cost Mercury Recovery Foxhill Instrument $100,000 $9,000 $4,000 $20,000 Quicksilver 60,000 1,200 6,000 If the installation can be expected to last 10 years and MARR is 6%, which equipment should be purchased based on Present worth Analysis? (15 points)

Answer 1

Ans: The Quicksilver should be purchased based on Present worth Analysis.

Explanation:

Present worth of Foxhill Instrument;

PW = - $100000 - $9000( P / A , i , n ) + $4000( P / A , i ,n ) + $20000( P / F , i ,n )

= - $100000 - $9000( P / A , 6% , 10 ) + $4000( P / A , 6% , 10 ) + $20000( P / F , 6%, 10 )

= - $100000 - $9000( 7.360 ) + $4000( 7.360) + $20000( 0.5584 )

= - $100000 - $66240 + $29440 + $11168

= -$166240 + $40608

= -$125632 or $125632

Present worth of Quicksilver;

PW = - $60000 - $6000( P / A , i , n ) + $1200( P / A , i ,n )

= - $60000 - $6000( P / A , 6% , 10 ) + $1200( P / A , 6% , 10 )

= - $60000 - $6000( 7.360 ) + $1200( 7.360)

= - $60000 - $44160 + $8832

= -$104160 + $8832

= -$95328 or $95328

The present worth cost of Quicksilver is less than the Foxhill instrument . Hence the Quicksilver should be purchased.