Question

An injection molding system has a first cost of $170,000 and an annual operating cost of $89,000 in years 1 and 2, increasing by $5,000 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 12% per year, determine the ESL and the respective AW value of the system.

The ESL is 5 year(s) and AW value of the system is $__________________ .

Answer 1

Operating cost in year 1 = 89,000

                            year 2 = 89,000

                            year 3 = 94,000

                            year 4 = 99,000

                            year 5 = 104,000

Salvage value = 170,000 * 0.25 = 42,500

PW = 170,000 + 89,000(P/F, 12%, 1) + 89,000(P/F, 12%, 2) + 94,000(P/F, 12%, 3) + 99,000(P/F, 12%, 4) + 104,000(P/F, 12%, 5) - 42,500(P/F, 12%, 5)

      = 170,000 + 89,000(0.8929) + 89,000(0.7972) + 94,000(0.7118) + 99,000(0.6355) + 104,000(0.5674) - 42,500(0.5674)

      = 170,000 + 79,468.1 + 70,950.8 + 66,909.2 + 62,914.5 + 59,009.6 - 24,114.5

     = 485,137.7

AW = P(A/P, i, n)

       = 485,137.7(A/P, 12%, 5)

       = 485,137.7(0.2774)

       = $134,577.2

Thus, AW value of the system is $134,577.2