Question

An airport needs a modern material handling system for facilitating access to and from a busy maintenance hanger. A​ second-hand system will cost ​$80000. A new system with improved technology can decrease labor hours by 15​% compared to the used system. The new system will cost ​$160000 to purchase and install. Both systems have a useful life of five years. The market value of the used system is expected to be ​$15000 in five​ years, and the market value of the new system is anticipated to be ​$60000 in five years. Current maintenance activity will require the used system to be operated 8 hours per day for 20 days per month. If labor costs ​$50 per hour and the MARR is 1​% per​ month, which system should be​ recommended?

The PW of the difference between the old and new systems is

Answer 1

Monthly labor cost for old system = 8 x 20 x $50 = $8,000

Monthly labor cost for new system = $8,000 x (1 - 0.15) = $8,000 x 0.85 = $6,800

Number of months = 5 x 12 = 60

PW of costs, Old system ($) = 8,000 x P/A(1%, 60) - 15,000 x P/F(1%, 60)

= 8,000 x 44.955 - 15,000 x 0.5504 = 359,640 - 8,256 = 351,384

PW of costs, New system ($) = 160,000 + 6,800 x P/A(1%, 60) - 60,000 x P/F(1%, 60)

= 160,000 + 6,800 x 44.955 - 60,000 x 0.5504 = 160,000 + 305,694 - 33,024 = 432,670

PW of difference ($) = 432,670 - 351,384 = 81,286