Question
In: Economics
An injection molding system has a first cost of $160,000 and an annual operating cost of...
An injection molding system has a first cost of $160,000 and an annual operating cost of $81,000 in years 1 and 2, increasing by $5,500 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 8% per year, determine the ESL and the respective AW value of the system.
The ESL is year(5) and AW value of the system is $__________________ .
Incorrect answers 479,881.50,471,254.77 i have tried using a negative value with not luck
Solutions
Expert Solution
Using Excel for ESL analysis
| Year | Discount factor | O&M cost | PV (O&M) | Cumulative (O&M) | Cumulative (O&M) + Initial Cost | Salvage value | PV (Salvage value) | NPV | (A/P,8%,n) | EUAC |
| A | B | C | D=C*B | E | F=E+160000 | G | H=G*B | I=F-H | J | K = I*J |
| 1 | 0.92593 | 81000.00 | 75000.00 | 75000.00 | 235000.00 | 40000.00 | 37037.04 | 197962.96 | 1.08000 | 213800.00 |
| 2 | 0.85734 | 81000.00 | 69444.44 | 144444.44 | 304444.44 | 40000.00 | 34293.55 | 270150.89 | 0.56077 | 151492.31 |
| 3 | 0.79383 | 86500.00 | 68666.49 | 213110.93 | 373110.93 | 40000.00 | 31753.29 | 341357.64 | 0.38803 | 132458.21 |
| 4 | 0.73503 | 92000.00 | 67622.75 | 280733.68 | 440733.68 | 40000.00 | 29401.19 | 411332.49 | 0.30192 | 124189.83 |
| 5 | 0.68058 | 97500.00 | 66356.86 | 347090.54 | 507090.54 | 40000.00 | 27223.33 | 479867.21 | 0.25046 | 120185.84 |
| Discount factor | 1/(1+0.08)^n | |||||||||
| (A/P,i,n) | i((1 + i)^n)/((1 + i)^n-1) |
ESL = 5 yrs
AW = -120185.84 ~ -120186 (use decimal value or rounded off value with negative sign)
Pls comment if you require further explanation or help
Showing formula in excel
| Year | Discount factor | O&M cost | PV (O&M) | Cumulative (O&M) | Cumulative (O&M) + Initial Cost | Salvage value | PV (Salvage value) | NPV | (A/P,8%,n) | EUAC |
| A | B | C | D=C*B | E | F=E+160000 | G | H=G*B | I=F-H | J | K = I*J |
| 1 | =1/(1.08)^A24 | 81000 | =C24*B24 | =D24 | =160000+E24 | 40000 | =G24*B24 | =F24-H24 | =0.08*((1 + 0.08)^A24)/((1 + 0.08)^A24-1) | =I24*J24 |
| 2 | =1/(1.08)^A25 | 81000 | =C25*B25 | =E24+D25 | =160000+E25 | 40000 | =G25*B25 | =F25-H25 | =0.08*((1 + 0.08)^A25)/((1 + 0.08)^A25-1) | =I25*J25 |
| 3 | =1/(1.08)^A26 | =C25+5500 | =C26*B26 | =E25+D26 | =160000+E26 | 40000 | =G26*B26 | =F26-H26 | =0.08*((1 + 0.08)^A26)/((1 + 0.08)^A26-1) | =I26*J26 |
| 4 | =1/(1.08)^A27 | =C26+5500 | =C27*B27 | =E26+D27 | =160000+E27 | 40000 | =G27*B27 | =F27-H27 | =0.08*((1 + 0.08)^A27)/((1 + 0.08)^A27-1) | =I27*J27 |
| 5 | =1/(1.08)^A28 | =C27+5500 | =C28*B28 | =E27+D28 | =160000+E28 | 40000 | =G28*B28 | =F28-H28 | =0.08*((1 + 0.08)^A28)/((1 + 0.08)^A28-1) | =I28*J28 |
| Discount factor | 1/(1+0.08)^n | |||||||||
| (A/P,i,n) | i((1 + i)^n)/((1 + i)^n-1) |
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