Question

Fresh Foods is considering the purchase of a new packaging system. The system costs $215,594. The company plans to borrow three-quarters (3/4) of the purchase price from a bank at 8% per year compounded annually. The loan will be repaid using equal, annual payments over a 7-year period. The payments will be made at the end of each year for the life of the loan, with the first payment occurring at the end of year 1. The system is expected to last 17 years and have a salvage value of $21,841 at the end of its life. Over the 17-year period, the company expects to pay $1,041 per year for maintenance. In addition, the system will require an overhaul at the end of year 8 which will cost $11,161. The system will save $2,413 per year because of efficiencies. The company uses a MARR of 3% to evaluate investments. What is the equivalent uniform annual worth (EUAW) of this system? Enter your answer as follows: 1234 Round your answer. Do not use a dollar sign ("$"), any commas (",") or a decimal point (":"). Hints: The loan interest is at a different interest rate than our MARR. How will this impact the problem? The remainder of the purchase price (the amount we do not take out in the form of a loan) would be considered our initial cost, at year o

Answer 1

@ tinez Cosz - $215,594 x '14 - $133,898.5 ② Loan amount = 215, 594 x (3/4) = $ 161, 695.5 ① Roan Repayment doan Amount Pla (8.%, 7) [(1+i)" ] where P/A (867) - [cito. OBJ-1] 2 [dBC 1+0.08)"] - 5.2064 doan repayment 161, 695.5 = poM Ergyuve 5.2064 = 31,057 Net Amual benefit ENAB) = Annual swing - Annual lart - doan repayment where, Annual saving, year II = 2413 +21841 (salvage) - $24.254 Annual cast, year I - 53,898.5 Annual lost year 8 - 1041 6 Coverhaul) *12202 worth EPW) of NAB is computed as follows. Note: PV factor in year N= (1.03jN 6 Present worth EPW) of NA Teert of calculation in below excel).

Ε Discounted NAB Year Saving (S) Cost ($) LoanRepayment ($) NAB ($) PV Factor @3% ($) (A) (B) (C) 31057 53898.5 1 2413 1041 2 2413 1041 3 2413 1041 2413 | 1041 5 2413 1041 6 2413 1041 7 2413 1041 12202 924131 1041 10 2413 1041 112413 1041 12 12 2413 1041 132413 1041 142413 1041 152413 1041 162413 1041 17 24254 1041 31057 31057 31057 31057 31057 31057 0 0 0 10 (D)=(A)- (E)=(1. 03)^- (D)x(E) (B)-(C) -53898.5 1 -53898.5 -29685 0.970873786 -28820.38835 -29685 0.942595909 -27980.95956 -29685 0.915141659 -27165.98016 -29685 | 0.888487048 -26374.73802 -29685 0.862608784 -25606.54176 -29685 0.837484257| -24860.72016 -29685 0.813091511 -24136.62151 -9789 0.789409234 -7727.526995 1372 0.766416732 1051.523757 1372 0.744093915 1020.896851 1372 0.722421277) 991.1619915 1372 0.70137988 962.2931956 1372 10.68095134 934.2652385 1372 0.661117806 907.0536296 1372 0.641861947 880.6345918 1372 0.623166939 854.9850406 23213 0.605016446 14044.24676 o 0 15 16 0 0 | 0 Present Worth(PW) of NAB -224924.9155 EUAW = PW /P/A(3%, 17) =(-224924.9155/13.1661) = - 17083.64022 P/A(3%,17) = 13.166118