Question

A device that monitors vibration changes in gas turbines has costs provided in the table below. Determine the Economic Service Life (ESL).

First cost ($)	120,000
Annual cost ($/year)	30,000
MARR	10%
Year	Salvage value ($)
0	-
1	100,000
2	95,000
3	90,000
4	85,000
5	65,000
6	45,000
7	25,000

Answer 1

EUAC for 1 yr of operation = 120000*(A/P,10%,1) + 30000 - 100000*(A/F,10%,1)

= 120000*1.1 + 30000 - 100000

= 62000

EUAC for 2 yr of operation = 120000*(A/P,10%,2) + 30000 - 95000*(A/F,10%,2)

= 120000*0.576190 + 30000 - 95000*0.476190

= 53904.76

EUAC for 3 yr of operation = 120000*(A/P,10%,3) + 30000 - 90000*(A/F,10%,3)

= 120000*0.402115 + 30000 - 90000*0.302115

= 51063.44

EUAC for 4 yr of operation = 120000*(A/P,10%,4) + 30000 - 85000*(A/F,10%,4)

= 120000*0.315471 + 30000 - 85000*0.215471

= 49541.48

EUAC for 5 yr of operation = 120000*(A/P,10%,5) + 30000 - 65000*(A/F,10%,5)

= 120000*0.263797 + 30000 - 65000*0.163797

= 51008.86

EUAC for 6 yr of operation = 120000*(A/P,10%,6) + 30000 - 45000*(A/F,10%,6)

= 120000*0.229607 + 30000 - 45000*0.129607

= 51720.55

EUAC for 7 yr of operation = 120000*(A/P,10%,7) + 30000 - 25000*(A/F,10%,7)

= 120000*0.205405 + 30000 - 25000*0.105405

= 52013.52

As annual cost of operation is lowest for 4 yrs of operation at 49541.48,

ESL= 4 yrs