Question

A new processing facility is being designed by an engineering project team. Your boss has asked you to design a catalytic system that requires pumping a hydrocarbon slurry that is corrosive and contains abrasive particles. You have narrowed your selection of pumps to two different models. Each pump will satisfy the needs of the project and they both have the same output capacity. The accompanying table lists the costs and other financial data for the two pumps. Complete an Annual Worth Analysis using a MARR of 9% per year and determine which manufacturer should be selected. Complete all calculations to the nearest dollar.

Manufacturer:	Ingersoll Rand	Sulzer Bingham
Initial Cost	$42,000	$60,000
Electrical Cost	$2,750 per year	$2,125 per year
Maintenance Cost	$1,750 in year one increasing by 3% per year thereafter	$750 in year three increasing by $150 per year thereafter
Overhaul Cost	None	$4,000 in year four
Salvage Value	$4,000	$5,500
Useful Life	4 Years	8 Years

Answer 1

Working notes:

(1) For both projects, Total cost = Electrical cost + maintenance cost

(In year 0, Total cost = Initial cost)

(2) For Sulzar, Total cost in year 4 will be higher by $4,000 (Overhaul cost).

(3) For both projects, Total cost in their terminal year will be lower by amount of salvage value.

(4) Accordingly, Present Worth (PW) of both are computed as follows.

INGERSOLL RAND
Year	Electrical Cost ($)	Maintenance Cost ($)	Total cost   ($)	PV Factor @9%	Discounted Total cost ($)
	(A)	(B)	(C)=(A)+(B)	(D)	(C)x(D)
0			42,000	1.0000	42,000
1	2,750	1,750	4,500	0.9174	4,128
2	2,750	1,803	4,553	0.8417	3,832
3	2,750	1,857	4,607	0.7722	3,557
4	2,750	1,912	662	0.7084	469
				PW ($) =	53,986
SULZAR BINGHAM
Year	Electrical Cost ($)	Maintenance Cost ($)	Total cost   ($)	PV Factor @9%	Discounted Total cost ($)
	(A)	(B)	(C)=(A)+(B)	(D)	(C)x(D)
0			60,000	1.0000	60,000
1	2,125		2,125	0.9174	1,950
2	2,125		2,125	0.8417	1,789
3	2,125	750	2,875	0.7722	2,220
4	2,125	900	7,025	0.7084	4,977
5	2,125	1,050	3,175	0.6499	2,064
6	2,125	1,200	3,325	0.5963	1,983
7	2,125	1,350	3,475	0.5470	1,901
8	2,125	1,500	-1,875	0.5019	-941
				PW ($) =	75,941

(5) Annual worth (AW) = PW / PVIFA(9%, N)

AW, Ingersoll ($) = 53,986 / PVIFA(9%, 4) = 53,986 / 3.2397** = 16,664

AW, Sulzar ($) = 75,941 / PVIFA(9%, 8) = 75,941 / 5.5348** = 13,721

Since Sulzar has lower AW of costs, this should be selected.

**From PVIFA factor tables