Question

Q2. Evaluate an electronic fabrication machine on the basis of the annual worth method when the MARR is 10% per year. Relevant cost data are as follows: (7 Marks) Investment cost Useful life Market (salvage) value at end of useful life Annual operating expenses Overhead cost-end of 8th year Overhead cost-end of 12th year Electronic Fabrication Machine $18,000 15 years $6,000 $450 $1000 $1500 Using Aw(i) method with short explai Please don't use excel use AW(i) factor

Answer 1

I will go stepwise so that it is easy for you to understand. See in case of annual worth calculation we convert the cash flow into annual equivalent cost per year. First of all we can express the cash flow into present worth.

$\large PW = -18,000 - 450(P/A,10\%,15) - 1,000(P/F,10\%,8) - 1,500(P/F,10\%,12) + 6,000(P/F,10\%,15)$

Now convert it to annual worth by multiplying both sides by (A/P,10%,15)

$\large AW = PW (A/P,10\%,15)=[ -18,000 - 450(P/A,10\%,15) - 1,000(P/F,10\%,8) - 1,500(P/F,10\%,12) + 6,000(P/F,10\%,15)](A/P,10\%,15)$

$\large \implies AW = -18,000(A/P,10\%,15) - 450- 1,000(P/F,10\%,8)(A/P,10\%,15) - 1,500(P/F,10\%,12)(A/P,10%,15) + 6,000(A/F,10\%,15)$

0.1 = AW = -18,000 x 450 – 1.000 x 1.1-8 x 1-1.1-15 0.1 0.1 - 1,500 x 1.1-12 0.1 X 1 - 1.1-15 + 6.000 x 1-1.1-15 1.115 – 1

$\large \implies AW = -18,000\times 0.1314- 450- 1,000 \times 1.1^{-8}\times 0.1314- 1,500 \times 1.1^{-12}\times 0.1314+ 6,000\times 0.03147$

$\large \implies AW = - \$ \ 2,751.86$

Annual worth = - $ 2,751.86

Since it is cost so we can ignore the negative sign.

Please contact if having any query will be obliged to you for your generous support. Your help mean a lot to me please help. Thank you. Please help me!