Question

An injection molding system has a first cost of $200,000 and an annual operating cost of $75,000 in years 1 and 2, increasing by $3000 per year thereafter. The salvage value of the system is 25% of the first cost regardless of when the system is retired within its maximum useful life of 5 years. Using a MARR of 8% per year, determine the ESL and the respective AW value of the system.

Answer 1

The economic service life with minimum equivalent cost annually is 5 years. The annual worth in year 5 is -119,804

This is found for n = 1 as

AW (n = 1) = -[200000 + 75000(P/A, 8%, 1) – 50000(P/F, 10%, 1)](A/P, 8%, 1)

= -241,000

Detailed description is given below.

Year	Annual cost	Salvage value	PV of the annual cost	PV of the market value	Net present value	EUAC
1	75000	50000	69444.44	46296.30	223148.15	241000.00
2	75000	50000	133744.86	42866.94	290877.91	163115.38
3	78000	50000	195663.77	39691.61	355972.16	138129.13
4	81000	50000	255201.19	36751.49	418449.70	126338.67
5	84000	50000	312370.18	34029.16	478341.02	119803.60