Question

7. Parker Hannifin of Cleveland, Ohio, manufactures CNG fuel dispensers. It needs replacement equipment to streamline one of its production lines for a new contract, but it 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 10% per year and a future worth analysis for the expected use period. Option First Cost $-62,000 $-72,000 AOC, per Year $-20,000 $-22,000 Expected Market Value $7,000 $8,000 Expected Use 3 years 6 years

Answer 1

Ans.

MARR 10%

Cumulative PV factor for 3rd year = 2.49

Cumulative PV factor for 6yrs = 4.35

PV factor at the end of 3rd year= .751

PV factor at the end of 6th year = .565                

                                                 Evaluation of the Proposal

                                                     D                            E

Present value of initial outflow                               62000                       72000

Present value of AOC

D 20000X2.49                                                    49800                          -

E 22000X4.35                                                         -                           95700

Less: Salvage value

D 7000X.751                                                     (5257)                           -

E 8000X.565                                                        -                             (4520)

Net present value                                             106543     163180

Present value factor                                           2.49                           4.35

Compareble cost per year                                42788                        37512

Comment: Option is E is better than option D