Question

A device that monitors vibration changes in gas turbines has costs provided in the table below. Determine the economic service life (ESL).

First cost ($): 120,000

Annual Cost ($/year): 30,000

MARR: 10%

Year Salvage Value ($)

0 -

1 100000

2 95000

3 90000

4 85000

5 65000

6 45000

7 25000

Answer 1

First cost = $ 120,000, Annual cost = $ 30,000

MARR = 10%

Now we have to calculate the annual equivalent cost of machine for all the years.

Now calculating AEC of year 2

Now calculating AEC of year 3

Calculating the EC of year 4

Now, calculating the AEC of year 5

Now, calculating the AEC of year 6

Now, calculating the AEC of year 7.

From the above calculations we can see that in the 4th year the AEC is lowest.

Economic service Life = 4 years.