Question

Solve it in spreadsheet

5.28 Parker Hannifin of Cleveland, Ohio manufactures CNG fuel dispensers. It needs replacement equip- ment to streamline one of its production lines for a new contract, but plans to sell the equipment at or before its expected life is reached at an estimated market value for used equipment. Select between the two options using the corporate MARR of 15% per year and a future worth analysis for the ex- pected use period. Also, write the FV spreadsheet functions that will display the correct future worth values. Option First cost, $ AOC, $ per year Expected market value, $ Expected use, years -62.000 -15,000 8,000 -77,000 -21,000 10,000

Answer 1

Expected usage period:

We have an unequal life of 3 and 6 years. The common life of both solutions will be 6 years using standard multiple methods. Option D is to be replicated twice along with cash flows.

NFW of D

NFW = 62000(F/P, 15%, 6) + 62000(F/P, 15%, 3) + 15000 (F/A, 15%, 6) – 4000 (F/P, 15%, 3) – 4000

NFW = 62000 (2.31306) + 62000(1.52088) + 15000 (8.75374) – 4000 (1.52088) – 4000 = 358926.86

NFW of E

NFW = 77000 (F/P, 15%, 6) + 21000(F/A, 15%, 6) -5000

NFW = 77000 (2.31306) + 21000(8.75374) -5000 = 356934

Option E should be selected due to lesser cost.

Maximum life period:

They are having unequal life of 4 and 8 years. Using common multiple method, the common life of both the options will be 8 years. Option D is to be repeated two times along with the cash flows.

NFW of D

NFW = 62000(F/P, 15%, 8) + 62000(F/P, 15%, 4) + 15000 (F/A, 15%, 8) – 4000 (F/P, 15%, 4) – 4000

NFW = 62000 (3.05902) + 62000(1.74901) + 15000 (13.72682) – 4000 (1.74901) – 4000 = 493004

NFW of E

NFW = 77000 (F/P, 15%, 8) + 21000(F/A, 15%, 8) -5000

NFW = 77000 (3.05902) + 21000(13.72682) -5000 = 518808

Option D should be selected.

The options in both projects are not the same. We must choose option E in the planned use plan and choose option D in the maximum duration.