Question

Problem 6-39 (algorithmic) Question Help Two insulation thickness alternatives have been proposed for a process stoam line subject to severe weather conditions. One alternative must be selected. Estimated savings in heat loss and installation cost are given below. Which thickness would you recommend or a ARRs 18% per year and ne ig ble market sa age values? The study per d is 4 years use the ted market value t cho que t esin at the m et alue ese a e a e a m for ears Thickness Installed Cost Annual Savings Life $18,000 $4,900 $7,750 4 years 6 years 5 cm $41,000 Click the icon to view the interest and annuity table for discrete compounding when j 18% per year The AW of 2 am insulation is s. (Round to the nearest dolilar.)

Answer 1

Annual worth of 2cm thick insulation is

AW₂ = -18,000(A/P, 18%, 4) + 4900

= -18000 (0.3717) + 4900 = -$1790.6

For the 5cm insulation , the market value using the imputed market value technique is

MV = -41,000 (A/P, 18%, 6) (P/A, 18%, 2) = -41000 (0.2859) (1.5656) = -$18,351.8

hence its annual worth is

AW₅ = -18,351.8 + 7750 = -$10,601.8

As the annual worth of the 2cm insulation is more than that of the 5cm insulation, option A should be chosen.