Question

Direction Please read the questions carefully. Please draw the cash flow diagrams and explain the steps that you are going to approach to solve the problems then solve the problem. Show the details in solving the problems. Please write legible hard writing, otherwise there is a deduction from your grade 10 points. Missing Cash Flow Diagram is deductible points equal to 20% of the total points for each question Question (1) An elevator company has redesigned their prod- uct to be 50% more energy efficient than hydraulic designs. Two designs are being considered for implementation in a new building. (a) Given an interest rate of 20% which bid should be accepted? А B Alternatives $45.000 2700 Installed cost Annual cost Salvage value $54.000 2850 4500 3000 10 15 Life. in years

Answer 1

EUAC of A = 45000 * (A/P, 20%,10) + 2700 - 3000 * (A/F,20%,10)

= 45000 * 0.238523 + 2700 - 3000 * 0.038523

= 13317.97

EUAC of B = 54000 * (A/P, 20%,15) + 2850 - 4500 * (A/F,20%,15)

= 54000 * 0.213882 + 2850 - 4500 * 0.013882

= 14337.16

As EUAC of A is lower, it should be selected

CFD of A

10,000.00 0.00 0 1 2 3 4 5 6 7 8 9 10 -10,000.00 Salvage Annual O&M -20,000.00 H Initial cost -30,000.00 + - 40,000.00 -50,000.00

CFD of B