6.

Applying the repeatability assumption, the alternative A will be repeated three times while the
alternative B will be repeated twice.
EO A B Increment (B-A)
Y
0 -3500 -5000 -1500
1-3 1255 1480 225
4 -3500+1255=-2245 1480 3725( 225 + 3500)
5 1255 1480 225
6 1255 -5000+1480=-3520 -4775 (225 -5000)
7 1255 1480 225
8 -3500+1255=-2245 1480 3725 (225 + 3500)
9-12 1255 1480 225

PW = -1,500 + 225(P/A, i’%, 12) + 3,500(P/F, i’%, 4) + 3,500(P/F, i’%, 8) – 5,000(P/F, i’%, 6)

PW = -1500 + 225(P/A,i%,3) + 3725(P/F,i%,4) +225(P/F,i%,5) – 4775(P/F,i%,6) +225(P/F,i%,7) +

3725(P/F,i%,8) + 225(P/A,i%,4)(P/F,i%,8)
Use Linear Interpolation
+Find 2 point of i’ (one has the positive PW; one has the negative PW)
By examination:

We find
With i=25%, PW= $48.3
With i=30%, PW= -$163.6
+ Linear interpolation formula:
'
30 %−25 % i −25 % '
= =¿ i =26 %
48.3−(−163.6) 48.3−0
 ● Present Worth Method, MARR = 10% per year
PWD1 (10%) = −$600,000 − $780,000(P/A,10%,8) = −$4,761,222
PWD2 (10%) = −$760,000 − $728,000(P/A,10%,8) = −$4,643,807
PWD3 (10%) = −$1,240,000 − $630,000(P/A,10%,8) = −$4,600,987
PWD4 (10%) = −$1,600,000 − $574,000(P/A,10%,8) = −$4,662,233

( PA ,10 % ,8)=5.3349
� Select Design D3 to minimize the present worth of costs.

● Future Worth Method, MARR = 10% per year

FWD1 (10%) = −$600,000(F/P,10%,8) − $780,000(F/A,10%,8) = −$10,206,162
FWD2 (10%) = −$760,000(F/P,10%,8) − $728,000(F/A,10%,8) = −$9,954,471
FWD3 (10%) = −$1,240,000(F/P,10%,8) − $630,000(F/A,10%,8) = −$9,862,681
FWD4 (10%) = −$1,600,000 (F/P,10%,8) – $574,000(F/A,10%,8) = −$9,993,967
� Select Design D3 to minimize the future worth of costs.

● Annual Worth Method, MARR = 1% per year

AWD1 (10%) = −$600,000 (A/P,10%,8) – $780,000 = −$892,440
AWD2 (10%) = −$760,000 (A/P,10%,8) – $728,000 = −$870,424
AWD3 (10%) = −$1,240,000 (A/P,10%,8) – $630,000 = −$862,376
AWD4 (10%) = −$1,600,000 (A/P,10%,8) – $574,000 = −$873,840
� Select Design D3 to minimize the annual worth of costs.
 6.4 (Dạng selling price, variable cost)

A W A (20 %)=−$ 30,000( A /P , 20 % ,10)+15,000( $ 3.50−$ 1.00)−$ 15,000+ $ 0( A / F ,20 % , 10)=$ 15345 A W B (20

⇨ B is preferable since it gives highest profit

6-19

a/
Using PW method
PW(15%) X = -$100000+[$50000(P/F,15%,1)]+ [$51,000(P/F,15%,2)] +[ $60,000(P/F,15%,3)]
= -$100000+[$50000*(0.8696)]+ [$51,000*(0.7561)] +[ $60,000*(0.6575)]
= -$100,000 + $43,480 + $38,561 + $39,450 = $21491

PW(15%) Y = -$100,000 + [$205,760*(P/F,15%, 3)]

= - $100,000+[$205,760*0.6575] = $35287.2
=> Recommend Alternative Y

b/
IRR on the incremental cash flow (−$50,000 in year one, −$51,000 in year
two, and $205760 - $60000 = $145,760 in year 3)
We have:
P W ∆ ( i % )=0−50,000 ( PF , i% ,1)−51,000 ( PF , i % , 2)+145,760( PF ,i % ,3)=0
Note : ( PF , i % , N )= ( 1+i1 ) N

⇨ i%= 27.19% . This favors Y when the MARR is 15%.

c/
PW(27,5%) X = -$100,000 + [$50,000*(P/F,27.5%,1)] + [$51,000*(P/F,27.5%,2)] + [$60,000*(P/F,
27.5%,3)] = -$100,000 + $39,216 + $31,373 + $28,948 = -$463.62
PW(27.5%) Y = -$100,000 + [$205,760*(P/F, 27.5%, 3)] = -$727
Choose X if one alternative must be selected.

d/

Alternative X
At θ=1=¿ 50,000−100,000=−50,000<0
at θ=2=¿ ( 50,000+ 51,000 )−100,000=1,000> 0

⇨ Simple payback period for Alt. X is 2 year.

In the same method, Alternative Y simple payback period is 3 years.
The simple payback period for Alt. X is 2 years; for Alt. Y it is 3 years.

Another way:
Alternative X ⇒ 1 year + ($50,000 / $51,000) = 1.98 years
Alternative Y ⇒ 2 years + ($100,000 / $205,760) = 2.49 years
The simple payback period for Alt. X is 2 years; for Alt. Y it is 3 years.

e/
Based on the answer to parts (a) and (b), Alternative Y should be recommended because its NPV is
much higher when MARR = 15%, and when MARR increased to 27.5%, the difference between both
alternatives is not much.
6.28

a. Repeatability assumption

Based on the repeatability assumption, the study life would be 36 years, in which the investment of
Lead Acid repeats three times while that of Lithium Ion repeats twice.
Applying the present worth method, we can get
𝑃𝑊acid = −$ 6,000(1 + (𝑃/𝐹, 5%, 12) + (𝑃/𝐹, 5%, 24)) − $ 2,500 (𝑃/𝐴, 5%, 36) = −$
52,568.561
𝑃𝑊ion = −$ 14,000(1 + (𝑃/𝐹, 5%, 18)) − $ 2,400 (𝑃/𝐴, 5%, 36) + $ 2,800((𝑃/ 𝐹, 5%, 18)
+ (𝑃/𝐹, 5%, 36)) = −$ 57,882.835

We should select Lead Acid.

Another way:
AWAcid = -6,000(A/P, 5%, 12) – 2,500 = -6,000 × 0.1128 – 2,500 = - $3,176.8
AWIon = -14,000(A/P, 5%, 18) -2,400 + 2,800(A/F, 5%, 18)
= -14,000 × 0.0855 -2,400 + 2,800 × 0.0355 = - $3,497.6
We should select Lead Acid.
b.
PWAcid = - 6,000 -2,500(P/A, 5%, 12) - 8,000(P/A, 5%, 6).(P/F, 5%, 12)
= - 6,000 -2,500 × 8.863 - 8,000 × 5.076 × 0.5568 = - $50,768

PWIon = - 14,000 – 2,400(P/A, 5%, 18) + 2,800(P/F, 5%, 18)

= - 14,000 – 2,400 × 11.69 + 2,800 × 0.4155 = - $40,892.6
We should select Lithium Ion

a. Assume repeatability so that AWs can be directly compared (over a

6−year study period).
60 hp
● AWA (8%) = −$1,200(A/P,8%,3) − $160 − 0.92 (0.746 kW/hp)(800
hrs/yr.)($0.07/kWh) = −$3,350.12
60 hp
● AWB(8%) = −$1,000(A/P,8%,6) − $100 − 0.8 ( (0.746 kW/hp)l(800 hrs/yr.)
($0.07/kWh) = −$3,449.5
� Select Motor A

(b) Increased capital investment of Motor A (relative to Motor B) is being traded off for improved
electrical efficiency and lower annual energy expenses.
6.32
a) PW method :

( PA , 15 % , 9)+ $ 25,000∗( PF ,15 % ,6)−$ 66,000∗( PA , 15 % , 3)∗( PF , 15 % , 6)=−$ 435

PW A =−$ 272,000−$ 28,800∗

PW =−$ 346,000−$ 19,300∗( , 15 % , 9 )+ $ 40,000∗( , 15 % , 9 )=−$ 426,721.07

P P
B
A F
→ Alternative B gives a lower cost (smaller absolute value of PW), therefore it should be preferred by Rule 2
(Sec. 6.2.2)
 b) IRR method :
- First, we need to rank the two alternatives in order of increasing capital investment, thus evaluating the
incremental cash flow ∆ (B− A):
The alternative with the least capital investment will become thebase alternative ,∈this caseis the alternative A .

Cash flow for IRR & ERR:

−Next , we calculate the IRR by letting the PW ∆ (B −A ) (i ' % )=0.

→ 0=PW ∆ (B −A ) ( i ' % )

¿−$ 74,000+ $ 9,500∗ ( PA , i % , 6)+ $ 75,500∗( PA , i % ,3)∗( PF ,i % , 6)+[ $ 40,000∗( PF , i % , 9)−$ 25,000∗( PF , i % , 6)
' ' ' ' '

'
Using trial∧error , we found out that :22 %<i %<23 % .
i’ PW(B-A)
20% 10234.12182
21% 5944.273205
22% 1946.672725
23% -1781.662733
24% -5261.709599
By interpolation method , we can find the value of IRR

23 %−22 % i ' %−22 %

=
1946.672725−(−1781.662733) 1946.672725−0

'
¿>i %=22.51% > MARR=15 %
→ The alternative B is preferred since the increment is justified and IRR exceeds MARR.
c) ERR method :ϵ =15 %

- First, we need to find the PW of all cash outflows and the FW of all cash inflows:

[ 74,000+15,500 ( FP ,15 % ,6)]∗( FP , i % ,9)

'

¿ 9500 ( FA ,15 % ,5)( FP , 15 % , 4)+75,500( FA , 15 % , 2)( FP , 15 % , 1)+115,500

9
⇨ $ 80,701.078∗ (1+i ) =$ 414,202.186

⇨ i=19.93 % > MARR=15 %

⇨ B is still preferred

d)
 P W Leasing A ( 15 % )=(−66,000−28,800 ) ( P
A
, 15 % , 9 )
¿−94,800 ( 4.7716 )
¿ $−452,347.7

We have from part a) : P W B ( 15 % )=−$ 426,721.07

Since B is still give lower cost => Leasing crane A would not be preferred
6-34

a/ Repeatedly assumption.
● PW1(8%) = −$100,000 - $100,000(P/F,8%,5) + $20,000(P/F, 8%, 5) +
$20,000(P/F, 8%, 10) +
($50,000- $22,000)(P/A, 8%, 10) = $42,699
● PW2(8%) = −$150,000 + ($70,000 - $40,000)(P/A, 8%, 10) = $51,303
Therefore, select alternative 2 to maximize profitability.

b/
 ● PW(1) = -$100,000 - $80,000 (P/F,15%,5) + $20,000 (P/F,15%,10) + $28,000 (P/A,15%,10)

= -$100,000 - $39,774.13882 + $4943.69412 + $140,525.52

= $5695.075

● PW(2) = -$150,000 + $30,000 (P/A,15%,10) = $563

If the MARR is changed to 15% per year, alternative 1 becomes the better choice. The principal
assumption in parts (a) and (b) is the repeatability of cash flows for alternative 1.

6.45

Based on the repeatability assumption, the study period is 20 years

a. E1: 4 cycles
PW1= -14000[1+ (P/F,15%,5) +(P/F,15%,10) +(P/F,15%,15)] - 14000(P/A,15%,20)+
8000[(P/F,15%,5)+ (P/F,15%,10)+ (P/F,15%,15) +(P/F,15%,20)]
= -$106,345
E2: 1cycle
PW2= -65000 -9000(P/A,15%,20) +13000(P/F,15%,20) = -$120,539
Another way:
A W E 1 ( 15 % )=−$ 14,000 ( PA ,15 % ,5)−$ 14,000+ $ 8,000( FA ,15 % , 5)
¿−14,000 ( 0.2983 )−14,000+8,000 ( 0.1483 )
¿−$ 16,989.8

A W E 2 ( 15 % )=−$ 65,000 ( AP ,15 % , 20)−$ 9,000+$ 13,000 ( AF , 15 % , 20 )

¿−65,000 ( 0.1598 )−9,000+13,000 ( 0.0098 )
¿−$ 19,259.5

Thus, choosing equipment 1 to minimize cost

b. AW of E2 in the period 5 years:

First, we calculate the PW at the EOY 5 that CR amount is remaining:
P W CR = [65000(A/P, 15%, 20) − $13,000(A/F, 15%, 20)] × (P/A, 15%, 15) = $59 991.9
The PW at EOY 5 of original market value at the end of useful life
P W MV = 13000(P/F,15%,15) = = $1,597.6
Thus,
Market value in the year 5: MV5= P W CR+PWmv= $61,589.5

AW= -65000(A/P,15%,5) -9000 + 61,589.5 (A/F,15%,5)

= -$19,255.7
Compare with:
The annual worth for investment in system E2 in part (a) is
𝐴𝑊𝐸2 = 𝑃𝑊𝐸2(𝐴/𝑃, 15%, 20) = −$ 19,259.5
Thus AW remains the same in 2 ways.