Question

A young engineer has been asked to determine the annual cost for a new paver the AJAX Construction company is considering. The company uses an interest rate of 4% per year. The following is the information the engineer has regarding the costs of the paver:

• First Cost $1.5 Million
• 1st year Operating and Maintenance (O&M) Cost $150,000
• Subsequent years O&M Costs increase by $10,000 per year
• Minor Overhauls are required in years 5, 15, 25 at a cost of $45,000
• Major Overhauls are required in years 10 and 20 at a cost of $75,000
• Life of the machine is 30 years

Complete the following problem according to the guidelines below:

• By hand
  • use the IPE approach with a cash flow diagram for the interpretation
  • Communicate your formulas correctly, showing the variables; followed by the data; followed by the value you used. (Example: In separate lines of the solution your equations should read as follows:
    1. … + F(p/f,i%,n) …
    2. ... + $40,000(p/f,4%,5) …
    3. … + $40,000(0.8219)
• In Excel
  • Use formulas and cell references to compute the cash flow and the uniform payment
  • Label the worksheet "Unit 4 Problem"

Answer 1

the Image provided above has small mistake in last 2 rows. Please consider following correct answer

Annual Cost = NPV / PVAF ( 0.04,30)

Annual Cost = 6267770.50 / 17.2920

Annual Cost = $362465.76

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