Question

4) An energy efficient air compressor will cost $30,000 installed and will require $1,000 worth of...

4) An energy efficient air compressor will cost $30,000 installed and will require $1,000 worth of maintenance each year for its life of 10 years. Energy costs will be $6,000 per year. A standard air compressor will cost $25,000 and will require $500 worth of maintenance each year. Its energy costs will be $10,000 per year. At an interest rate of 12%, which one is preferable?

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Answer #1


Question 4

Energy efficient air compressor

Installation cost = $30,000

Annual maintenance cost = $1,000

Annual energy cost = $6,000

Calculate the present worth -

PW = -$30,000 - $1,000(P/A, 12%, 10) -$6,000(P/A, 12%, 10)

PW = -$30,000 - ($1,000 * 5.6502) - ($6,000 * 5.6502)

PW = -$30,000 - $5,650.2 - $33,910.2

PW = -$69,551.40

The present worth of energy efficient air compressor is -$69,551.40

Standard air compressor -

Installation cost = $25,000

Annual maintenance cost = $500

Energy cost = $10,000

Calculate the present worth -

PW = -$25,000 - $500(P/A, 12%, 10) - $10,000(P/A, 12%, 10)

PW = -$25,000 - ($500 * 5.6502) - ($10,000 * 5.6502)

PW = -$25,000 - $2,825.1 - $56,502

PW = -$84,327.10

The present worth of standard air compressor is -$84,327.10

The present worth of energy efficient air compressor is numerically higher.

So,

The energy efficient air compressor is preferable.

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