Question

If labour savings are estimated to be $25000 per 6 months, how much can INDE232 Company afford to spend to purchase one, if the company uses a MARR of 1% per month and wants to recover its investment in 4-1/2 (4 and a half) years?

Select one:

a. 138819

b. 175351

c. 66640

d. 168938

e. 55345

Answer 1

Labor saving every 6 months = 25,000

MARR = 1% per month which means effective MARR for 6 months = (1 + MARR)^^{6 months} = (1 + 0.1)^⁶ = 1.0615

Recovery period = 4.5 years there will be 9 savings of 25,000 after every interval of 6 months

Present value of saving is calculated as: [Saving / (1 + MARR of 6 months)^^{After every 6 months}]

After every 6 months	Saving	Present Value
1	25,000	23,552
2	25,000	22,187
3	25,000	20,902
4	25,000	19,691
5	25,000	18,550
6	25,000	17,475
7	25,000	16,463
8	25,000	15,509
9	25,000	14,610
		168,938

Sum of present value of saving = 168,938 which can be invested now by INDE232 to purchase.

Option D is correct.