Question

Question 7 Two incinerators are being considered by a waste management company. Design A has an initial cost of $2,150,000, has annual operating and maintenance costs of $700,000, and requires overhauls every 5 years at a cost of $1,200,000. Design B is more sophisticated, including computer controls; it has an initial cost of $5,550,000, has annual operating and maintenance costs of $400,000, and requires overhauls every 10 years at a cost of $2,550,000. Click here to access the TVM Factor Table Calculator Using a 8.5 %/year interest.rate, detetmine the capitalized cost for each design. Design A: Design B:$ Carry all interim calculations to 5 decimal places and then round your final answer to the nearest dollar. The tolerance is 1400. Recommend which design should be chosen:

Answer 1

MARR = 8.5%

Capitalized Cost of alternative A = 2150000 + 700000 / 0.085 + [1200000 * (A/F, 8.5%,5)] / 0.085

= 2150000 + 700000 / 0.085 + [1200000 * 0.168766] / 0.085

= 12767869.44 ~ 12767869 (Nearest Dollar)

Capitalized Cost of alternative B = 5550000 + 400000 / 0.085 + [2550000 * (A/F, 8.5%,10)] / 0.085

= 5550000 + 400000 / 0.085 + [2550000 * 0.067408] / 0.085

= 12278113.51 ~ 12278114 (Nearest Dollar)

As Capitalized Cost of alternative 2 is lower, it should be selected