Question

The Briggs and Stratton Commercial Division designs and manufacturers small engines for golf turf maintenance equipment. A robotics-based testing system with support equipment will ensure that their new signature guarantee program entitled "Always Insta-Start" does indeed work for every engine produced. Pull System Push System First cost of equipment $-1,900,000 $-2,600,000 AOC per Year $-660,000 $-680,000 Salvage Value $100,000 $50,000 Estimated Life 8 years 8 years Determine the salvage value for the push system that will make the company indifferent to the two systems. Also, MARR = 15% per year. The salvage value for the push system is determined to be $ in $1000 units.

Answer 1

Present worth of Pull:
AOC				-660000
Multiply: ANNuity PVFat 15% for 8 yrs				4.48732
Present value of AOC					-2961631
Initial Investment					-1900000
Less: PV f salvage (100000*0.326902)					32690.2
Net present worth					-4828941
Less: PV pf AOC of Push					-3051378
AOC				-680000
Multiply: ANNuity PVFat 15% for 8 yrs				4.48732
Less: Initial Investment					-2600000
PV of Salvage that should be realised					822436.6
Divide: PVF at 15% for 8th yr					0.326902
Salvage value to be realised					2515851
Answer is 2515851