Question

An injection molding system has a first cost of $175,000 and an annual operating cost of $87,000 in years 1 and 2, increasing by $4,000 per year thereafter. The salvage value of the system is 25% of the first cost regardless of when the system is retired within its maximum useful life of 5 years. Using a MARR of 14% per year, determine the ESL and the respective AW value of the system.

Answer 1

Answer:

The ESL is 5 years and annual worth is $143,711

Explanation:

If negative values are not allowed, you can enter 143,711 as the annual worth

• DF = Discounting factors are calculated by using the formula 1/1.14.

• CF = cash flows. 3500 is added on annual basis from 3rd year, since the increase is per year.

• Fifth year CF = 45000 is obtained as - 97500 + salvage value ( 210000 * 25%) 52500 = 45000.

• AWF = Annual worth factor is obtained by dividing each year DF with the Total of DF.

• In the last step we multiply CF and AWF to get equivalent annual worth.

Use the following formula:

AW = - 210000 / PVIFA - 87000 [ PV(1)/PVIFA] - 87000 [ PV(2) / PVIFA] - 90500 [  PV(3) / PVIFA] - 94000 [  PV(4) / PVIFA] - 45000 [  PV(5) / PVIFA].