Question

A machine costs $17053 and is expected to have a scrap value of $2171 whenever it is retired. Operating and Maintenance costs are $1517 for the first year and expected to increase by $1457 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+17053	G	H=G*B	I=F-H	J	K = I*J
1	0.900901	1517.00	1366.67	1366.67	18419.67	2171.00	1955.86	16463.81	1.110000	18274.83
2	0.811622	2974.00	2413.77	3780.43	20833.43	2171.00	1762.03	19071.40	0.583934	11136.43
3	0.731191	4431.00	3239.91	7020.34	24073.34	2171.00	1587.42	22485.92	0.409213	9201.53
4	0.658731	5888.00	3878.61	10898.95	27951.95	2171.00	1430.10	26521.84	0.322326	8548.69
5	0.593451	7345.00	4358.90	15257.85	32310.85	2171.00	1288.38	31022.47	0.270570	8393.76
Discount factor	1/(1+0.11)^n
(A/P,i,n)	i((1 + i)^n)/((1 + i)^n-1)

Minimum EUAC = 8393.76 at 5 yrs

So economic service life is 5 yrs