Question

2.1 UPS is considering replacing part of their NJ truck fleet. They have narrowed their choices down to two alternatives. Description First Cost Salvage value Annual Benefit Annual O&M Cost Life MARR Automaker A $ 30,000,000 $ 3,300,000 $ 9,600,000 S 1,500,000 8 15% Automaker B $ 28,200,000 $ 2,500,000 $ 9,600,000 $ 1,920,000 15% a) Calculate the PW for both the alternatives. (Do not use AW or FW) [6 point) b) Calculate the AW for both thealternatives. (Do not use PW or FW) [6 points]

Answer 1

Date Present worth for both the Alternatives will be calculated by using the formula which is given below. INPW - efo (1+r) . CFI (1+r) + CE2 (ltr) --- Cfn Citojn where CFO = r & n = cash flow at period o' or intized Costs MARR or discount rate No. of Year Years Calculation of PW Cash flows - 30,00, 0900 (960o0oo-15000ool 33,00,000 for Auto Maker A Netcashflow PVF 15% - 30,009000 1.00 8100,000 46487 3300 000 0.327 Net Present value 1 to8 Present Value - 30,000,000 36344700 1079100 7423 800 Year I calculation of Present worth for Automaker B. cash flows Netcash flows Puf 15% Present value -28200000 - 28, 200 000 1.00 -28,900 000 (9600oo0o-1920000) 76,80000 4.487 34460160. 2500 ooo 25000oo 0.327 817500 Net Present value 7097660 1 to 8

Page Date Calculation of Ezuivalent. _Annual worth EAW = PW PWF 15%, 8 yeay $7423800 4.487 A $16,59513 B = $ 7077660 4.487 $ 1577370 (2 future worth calculation of Auto maker A2 Years CF 0 - 30,00 0000 8 lodovo 8100 our 810oad 81 oooo 81000d 8100 000 8100 OUD 8 8100 000 8300000 Ewf 15% 3.059 2.660 2.313 9.01) 1.7490 1.5209 1.3225 1.15 1.00 2.00 Fwcs) -91770000 21546000 18735300 16289100 141 66900 12319290 10712950 93,15000 8 00 OUD 3300 ouo future worth 22 71 8840

Page Date for Automaker B. Ewf 15%. 3.059 8.660 2.313 future worth Years CF 0 98,200000 1 7680000 76,80000 76,80000 76,80000 76,80000 76,80000 76,80000 76,80000 a 500 OUD tot 2G swo- 7.7490 1.5209 1.3225 1:15 1.oo 2.00 future worth - 86263800 20498800 17763840 15444980 13432320 116,80512 To 156800 88.32000 7680000 2500 do future worth 21654959 (d) Decision Based on Equivalent Annual worth UPS Should choose Alternative A. because its FAW is more than the Alternative B, Hence. It is better for Ups to choose Alternative Ai