Question

White Oaks Properties builds strip shopping centers and small malls. The company plans to replace its refrigeration, cooking, and HVAC equipment with newer models in one entire center built 10 years ago. 10 years ago, the original purchase price of the equipment was $800,000 and the operating cost has averaged $215,000 per year. Determine the equivalent annual cost of the equipment if the company can now sell it for $224,000. The company’s MARR is 19% per year.

Answer 1

Initial investment = $ 800,000

O&M cost = $ 215,000 per year

Salvage value = $ 224,000

MARR = 19%

AW = -800,000(A/P, 19%.10-215,000+224,000(A/F. 19%.10)

AW 0.19 = -800,000 X 1_1 19-10-21 10 - 215,000+ 224,000 x 0.19 1.1910_1

AW = -800,000 0.23047 – 215,000 + 224,000 x 0.04047

S AW = -184.377.047 – 215,000+ 9.065.5732

AW = -$ 390,311.47

Equivalent Annual Cost of the machine was $ 390,311.

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