Question

"Engineering Economics"

How do you solve this using excel?

1. A machine costs $35,000 to buy and $5,000 per year to operate and maintain. It will have a salvage value of $8,000 in 9 years. It will generate $10,000 per year in net revenue for the first four years, and then the revenue will fall by $1,000 each year after. If the company purchasing the machine uses a MARR of 7% to make project, find the NPW, NEW, and AW. Is this project worth undertaking if no loss is expected? 2. A company is considering purchasing a heat exchanger for $80,000. The exchanger will save $12,000 a year over a 9-year life with no salvage value. If the MARR is 8%, is the project worth undertaking if no loss is expected? Provide justification for your recommendation.

Answer 1

Refer the attached picture I have solved it using excel and in the function bar the formula you can see

fx =NPV(0.07, F5:F13 )+ F4 A B C D E F 3 11 Year CF MOC sv Net CF 0 -30000 -30000 1 10000 -5000 5000 10000 -5000 5000 10000 -5000 5000 10000 -5000 5000 5 | 9000 -5000 4000 8000 -5000 3000 7000 -5000 2000 8 | 6000 -5000 1000 5000 -5000|8007 8000 Net Present Worth T-$2,033.99

Refer the attached picture for calculation of Annual Worth

fx --PMT(0.07,9, F14 ,0) A B C D E F Year CF MOC sv | Net CF 0 -30000 -30000 10000 -5000 5000 10000 -5000 5000 3 10000 -5000 5000 4 10000 -5000 5000 | 9000 -5000 4000 8000 -5000 3000 7000 -5000 2000 8 6000 -5000 1000 9 5000 -5000 8000 8000 Net Present Worth -$2,033.99 Annual Worth -$312.19

Refer the attached picture for calculation of NFW

fx =-FV(0.07,9, F15 ) B C D E F Year CF MOC SV Net CF 0 -30000 -30000 10000 -5000 5000 2 10000 -5000 5000 3 10000 -5000 5000 4 10000 -5000 5000 5 | 9000 -5000 4000 8000 -5000 3000 | 7 7000 -5000 2000 8 | 6000 -5000 1000 9 5000 -5000 8000 8000 Net Present Worth -$2,033.99 Annual Worth -$312.19 Net Future Worth Y-$3,739.41

2. First of all solving it using Excel

fx --PV( 17 , 16 , 15 )- 14 H m L o Price $80,000 Annual Saving $12,000 NPER 9 Interest rated 8% PW Y-$5,037.35 n 00

Now, calculating it manually

PW = -80,000+ 12,000(P/A,8%.9)

1 - 1.08-9 PW = -80,000+ 12,000 x = 0.08

S PW = -80,000 + 12,000 x 6.24688

S PW = -80.000 + 74,962.65

PW = _$ 5,037.35

We should not purchase the machine as the NPW of the exchanger is negative. Hence, we must not purchase as there will be a loss.

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