Question

An industrial sewing machine costs $5389 and is expected to have a scrap value of $3570 whenever it is retired. Operating and Maintenance costs are $1585 for the first year and expected to increase by $2270 thereafter. If the MARR is 11%, determine the minimum equivalent uniform annual cost associated with the optimal economic life of the machine. The service life of this machine is 5 years. Note: round your answer to two decimal places, and do not include spaces, currency signs, plus or minus signs, nor commas.

Answer 1

MARR = 11%

Using Excel for Economic life analysis

Year	Discount factor	O&M cost	PV (O&M)	Cumulative (O&M)	Cumulative (O&M) + Initial Cost	Salvage value	PV (Salvage value)	NPV	(A/P,11%,n)	EUAC
A	B	C	D=C*B	E	F=E+5389	G	H=G*B	I=F-H	J	K = I*J
1	0.900901	1585.00	1427.93	1427.93	6816.93	3570.00	3216.22	3600.71	1.110000	3996.79
2	0.811622	3855.00	3128.80	4556.73	9945.73	3570.00	2897.49	7048.24	0.583934	4115.70
3	0.731191	6125.00	4478.55	9035.28	14424.28	3570.00	2610.35	11813.93	0.409213	4834.41
4	0.658731	8395.00	5530.05	14565.33	19954.33	3570.00	2351.67	17602.66	0.322326	5673.80
5	0.593451	10665.00	6329.16	20894.48	26283.48	3570.00	2118.62	24164.86	0.270570	6538.29
Discount factor	1/(1+0.11)^n
(A/P,i,n)	i((1 + i)^n)/((1 + i)^n-1)

Minimum EUAC = 3996.79 at 1 yr

So Economic service life is 1 yr