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A company is looking into two types of compressors to replace an aging compressor. The data...

A company is looking into two types of compressors to replace an aging compressor. The data in the table below has been compiled for comparison

Centrifugal Compressor Reciprocating Compressor
Installed Cost $2,000,000 $850,000
Annual O&M costs $50,000 $150,000
Service Life in years 15 8
Salvage Value $80,000 $60,000

If the firm's MARR is known to be 16%, which option will you recommend?

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Please give positive ratings so I can keep answering. It would help me a lot. Please comment if you have any query. Thanks!
Particulars Centrifugal Reciprocating Note
Cost of Project    2,000,000.00       850,000.00 A
Annual O&M costs         50,000.00       150,000.00 B
Salvage Value         80,000.00         60,000.00 C
Life                 15.00                   8.00 D
Annuity factor at 16%               5.5755               4.3436 E
Present Value of Annual O&M costs       278,772.81       651,538.63 F=B*E
Present Value at 16%               0.1079               0.3050 G
Present Value of Salvage Value           8,634.16         18,301.53 H=C*G
Net Present Value 2,270,138.65 1,483,237.11 I=A+F-H
Net cost of Reciprocating Compressor is less so it should be accepted.

ekkarill92 answered 1 year ago
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