Question

The Briggs and Stratton Commercial Division designs and manufacturers small engines for golf turf maintenance equipment....

The Briggs and Stratton Commercial Division designs and manufacturers small engines for golf turf maintenance equipment. A robotics-based testing system with support equipment will ensure that their new signature guarantee program entitled "Always Insta-Start" does indeed work for every engine produced.  

Pull System Push System
First cost of equipment $-1,950,000 $-3,050,000
AOC per Year $-620,000 $-500,000
Salvage Value $85,000 $130,000
Estimated Life 8 years 8 years

Determine the salvage value for the push system that will make the company indifferent to the two systems. Also, MARR = 11% per year. The salvage value for the push system is determined to be $ in $1000 units.

Homework Answers

Answer #1
Present value of Pull system:
AOC -620000
Annuity for 8 years at 11% 5.1461
Present value of AOC -3190582
Add: initial investment -1950000
Present value of outflows -5140582
Less: Present value of salvage 36881.5
($ 85000* 0.4339)
Present worth -5103701
Push System
AOC -500000
Annuity for 8 years at 11% 5.1461
Present value of AOC -2573050
Add: initial investment -3050000
Present value of outflows -5623050
To be equivalent, Net present worth -5103701
Present value of Salvage 519349
Divide: Present valeu factor 0.4339
Salvage value of Push System 1196932
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