Question

6-35. Your plant must add another boiler to its steam generating system. Bids have been ob- tained from two boiler manufacturers as follows: Boiler A Boiler B Capital investment Useful life, N $50,000 $100,000 40 years $20,000 20 years $10,000 Market value at ΕΟΥΝ Annual operating $9,000 $3,000, increasing $100 per year costs after the first year If the MARR is 10% per year, which boiler would you recommend? Use the repeatability assumption. (6.5) 6-36. Three mutually exclusive alternatives considered for the production equipment at a tissue paper factory. The estimated cash flows for each alternative are given here. (All cash flows are in thousands.)

Answer 1

Solution: Boiler A would be recommended

Explanation:

AW-Boiler A: -$50,000(A/P, 10%,20) + 10,000 (A/F,10%,20) - $9,000

= (-$50,000 * 0.1175) + (10,000 * 0.0174956) - $9,000

= -$14,704

AW-Boiler B: -$120,000(A/P, 10%,40) + 20,000 (A/F,10%,40) - $3,000 - $300 (A/G,10%,40)

= (-$120,000 * 0.1023) + (20,000 * 0.0022594) - $3,000 - ($300 * 9.09623)

= -$17,692

Thus Boiler A woule be recommended