Question

An injection molding system has a first cost of $165,000 and an annual operating cost of $91,000 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 13% 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

Salvage value = 25%*165000 = 41250

EUAC = NPW*MARR/(1-(1+MARR)^-time)

ESL (Economic service life) is the time at which EUAC is minimum.

NPW = Cashflow at year 0+NPV(13%, remaining cashflows)
or
NPW = 165000 + 41750/(1+MARR) for first case and so on
Basically we need to calculate the present values of cashflows and sum it up.

ESL = 4 years

AW = EUAC = 133838.86