Question

You are purchasing a pump for your industrial plant. Your planning horizon is 60 years. There are two pumps under consideration, A and B. Their characteristics are shown in the table below.

If the MARR is 10%, what is the present value of the better choice.

Note: Either pump A is used for the entire 60 years or pump B is used for the entire 60 years

	A	B
Purchase cost	$10,000	$16,000
Service life (years)	10	5
Operating cost per year	$1,000* age in years	$800* age in years
Salvage value	0	0

Answer 1

According to the question two pump purchasing power ,service cost & operating cost is given .

purchsing cost of A pump is 10000$ + service life 10 years + oprating cost $1000

so purchasing cost + oprating cost = $10100 in 10 yaers.

on the other hand

B pump is having purchasing cost is 16000 $+ oprating cost is 800 $ =16800$ in 5 yaers.

hence pump A is having low cost than pump B for more years ,so consumer will purchage pump A for next 60 years of time.