Question

As a project engineer, you received the AW analysis below from the finance department. It is for a new piece of equipment you ordered some months ago. You were told the interest rate used was 10% per year, but no first cost or projected salvage value was provided and you want to know them. Determine the values of P and S using the AW values for the year 3. Note: The AW values are equivalent values through the given year, not costs for the single year.

Answer 1

Answer and Explanation:

The computation of the value of P and the value of S is shown below:

For P

The Annual worth of the first cost for the year 3 is $18,899

Now

Annual worth = First Cost(A/P, 10%, 3)

$18,899 = P[0.1(1 + 0.1)^3 ÷ ((1 + 0.1)^3 - 1)]

$18,899 = 0.4021P

P = $46,999

For S

The Annual worth of the salvage value for the year 3 is $6,648

Now

Annual worth = Salvage value(A/F, 10%, 3)

$6,648 = S[0.1 ÷ ((1 + 0.1)^3 – 1)]

$6,648 = 0.30211S

S = $22,005