Question

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Parker Hannifin of Cleveland, Ohio, manufactures CNG fuel dispensers. It needs replacement equipment to streamline one of its production lines for a new contract, but it plans to sell the equipment at or before its expected life is reached at an estimated market value for used equipment. Select between the two options using the corporate MARR of 15% per year and a future worth analysis for the expected use period.

Option	D	E
First Cost	$-62,000	$-72,000
Annual Operating Cost, per Year	$-20,000	$-22,000
Expected Market Value	$7,000	$8,000
Expected Use	3 years	6 years

Answer 1

Here we are required to calculate the future worth of the two alternatives

Alternative D has a useful life of 3 years while of E it is 6 years in order to compare these two we have to make their lives equal take LCM of 3 and 6 we get 6 years

year	D	E
0	-62,000	-72,000
1	-20,000	-22,000
2	-20,000	-22,000
3	-62,000 - 20,000 + 7,000	- 22,000 + 8,000
4	-20,000	-22,000
5	-20,000	-22,000
6	- 20,000 + 7,000	- 22,000 + 8,000

Now calculate the future worth of E

Select Alternative E. Since its cost is less than that of alternative D.

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If you wish to calculate the Future worth only for Expected use period then the FW of alternative E will be same as calculated above that is -$ 351,124

In case of Alternative D the FW will be

But here we have to compare the two alternatives so the FW of alternative D is -$ 395,141.