Question

Question No. 7I8Marks UPS Freight plans to spend $100 million on new long-haul tractor-traifers. Some of these vehicles will include a new shelving design with adjustable shelves to transport irregularly sized freight that requires special handling during loadingan unloading Compare the alternatives at the MARR of 10% per year. (Use the Present Worth with LCM approach) Design A Movable Shelves Adaptable Frames Design 8 1,100,00 o 65,000 First cost, S Annual cost, S per year Annual revenue, S per year Salvage value,5 Life, years 2,500,000 130,000 800,000 625,000 000020,000 6

Answer 1

As per the given data & information there are two alternative available alternative A (minable shelves) The MARR is given as 10% per year The initial cost of equipment is $2,500,000(p) with salvage value of $ 50,000(F) at the end of ils useful life that is 6 years The The annual operating costs are $ 30, 000 and the annual revenue are $ 800, 000 Thus the net annual revenue is $ 670, 000(A) \r\n Following is the formula to calculate the cost of the given alternative CC = AW/I = [A - P(A/P, I, n) + F(A/F, I, n)] substitute the value in above equation CC = [$ 670, 000 - $2, 500, 000 (A/P 10% 6) + $50,000(A/F 10%)/10% = [$ 670, 000 - $ 2, 50, 000(0.22961) + $ 50, 000(0.12961)/0.10 = ($670, 000 - $ 574, 025 + $ 6, 480.50)/0.10 = $ 102, 455.50/0.10 = $ 1024.555 Thus the cost of A is $ 1024,555 \r\n The initial cost of equipment of $ 100,000 (p) with value of $ 20,000 at the end of its useful life that
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