Question

2A ENGR 314 2019(5 MAN B&W is considering offering a new dual-fueled engine to its customers. MAN is may outsource the warranty service work for this engine, through a S-year contract basis or a 10-year license agreement. Alternatively MAN can do warranty service work using in-house personnel. Using the estimates provided by MAN below, perform an annual worth evaluation at 8% per year compounded annually to select the best option. Show the evaluation calculation for each option-then choose the best option for MAN 3. All Values in $Millions CONTRACT LICENSE IN-HOUSY Cost Annual Cost (S Annual Income Life, years 0 20 2,5 10

Answer 1

ANSWER:

1) Contract:

aw = 1st cost(a/p,i,n) + annual cost + annual income

aw = 0(a/p,8%,5) - 1 + 2.5

aw = 0 * 0.2505 + 1.5

aw = 0 + 1.5

aw = 1.5

2) License:

aw = 1st cost(a/p,i,n) + annual cost + annual income

aw = -2(a/p,8%,10) - 0.2 + 1.3

aw = -2 * 0.149 + 1.1

aw = -0.298 + 1.1

aw = 0.802

3) IN house:

aw = 1st cost(a/p,i,n) + annual cost + annual income

aw = -20(a/p,8%,infinity) - 4 + 8

aw = -20 * 0.08 + 4

aw = -1.6 + 4

aw = 2.4

since the annual worth of in house personnel is highest , we would recommend man to use in house personnel that is option 3.