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Tutorial 5 Solution

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7 views

Tutorial 5 Solution

Uploaded by

sissy.he.7
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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ECE 192, Spring 2023

Problem-1 Solution
𝑨𝑾 = −𝟏, 𝟎𝟎𝟎, 𝟎𝟎𝟎 (𝑨⁄𝑷 , 𝟏𝟏%, 𝟑𝟎) + 𝟑𝟎, 𝟎𝟎𝟎(𝑭⁄𝑨 , 𝟏𝟏%, 𝟐𝟎)(𝑨⁄𝑭 , 𝟏𝟏%, 𝟑𝟎) − 𝟐𝟎, 𝟎𝟎𝟎
− 𝟏𝟎𝟎, 𝟎𝟎𝟎(𝑨⁄𝑭 , 𝟏𝟏%, 𝟑𝟎)

𝑨𝑾 = −𝟏, 𝟎𝟎𝟎, 𝟎𝟎𝟎 (𝟎. 𝟏𝟏𝟓𝟎) + 𝟑𝟎, 𝟎𝟎𝟎(𝟔𝟒. 𝟐𝟎𝟐𝟖)(𝟎. 𝟎𝟎𝟓𝟎𝟐) − 𝟐𝟎, 𝟎𝟎𝟎
− 𝟏𝟎𝟎, 𝟎𝟎𝟎(𝟎. 𝟎𝟎𝟓𝟎𝟐)
𝑨𝑾 = −$𝟏𝟐𝟓, 𝟖𝟓𝟑. 𝟎𝟓𝟖 > −$𝟏𝟑𝟎, 𝟎𝟎𝟎

Based on the AW criterion, it is preferred to develop the landfill site.

Problem-2 Solution
a) With the annual worth method, we do not need to implement the multiple lifetime method;
hence:
𝑨𝑾𝑨 = −𝟏, 𝟓𝟎𝟎, 𝟎𝟎𝟎 (𝑨⁄𝑷 , 𝟖%, 𝟓) + 𝟏𝟎𝟎, 𝟎𝟎𝟎(𝑨⁄𝑭 , 𝟖%, 𝟓) + 𝟗𝟎𝟎, 𝟎𝟎𝟎 − 𝟔𝟎𝟎, 𝟎𝟎𝟎
𝑨𝑾𝑨 = −𝟏, 𝟓𝟎𝟎, 𝟎𝟎𝟎 (𝟎. 𝟐𝟓𝟎𝟓) + 𝟏𝟎𝟎, 𝟎𝟎𝟎(𝟎. 𝟏𝟕𝟎𝟓) + 𝟑𝟎𝟎, 𝟎𝟎𝟎
𝑨𝑾𝑨 = −$𝟓𝟖, 𝟔𝟒𝟒

𝑨𝑾𝑩 = −𝟐, 𝟎𝟎𝟎, 𝟎𝟎𝟎 (𝑨⁄𝑷 , 𝟖%, 𝟏𝟎) + 𝟐𝟎𝟎, 𝟎𝟎𝟎(𝑨⁄𝑭 , 𝟖%, 𝟏𝟎) + 𝟏, 𝟏𝟎𝟎, 𝟎𝟎𝟎 − 𝟖𝟎𝟎, 𝟎𝟎𝟎
𝑨𝑾𝑩 = −𝟐, 𝟎𝟎𝟎, 𝟎𝟎𝟎 (𝟎. 𝟏𝟒𝟗𝟎) + 𝟐𝟎𝟎, 𝟎𝟎𝟎(𝟎. 𝟎𝟔𝟗𝟎) + 𝟑𝟎𝟎, 𝟎𝟎𝟎
𝑨𝑾𝑩 = $𝟏𝟓, 𝟕𝟒𝟔

Based on AW method, Alternative B should be selected.

b) Since service life is not equal, it should be extended up to the least common multiple of both
service lives, which is 10 years. In this case we have to repeat the service life of Machine A
once. Hence:

𝑷𝑾𝑨 = −𝟏, 𝟓𝟎𝟎, 𝟎𝟎𝟎 [𝟏 + (𝑷⁄𝑭 , 𝟖%, 𝟓)] + 𝟏𝟎𝟎, 𝟎𝟎𝟎[(𝑷⁄𝑭 , 𝟖%, 𝟓) + (𝑷⁄𝑭 , 𝟖%, 𝟏𝟎)]
+ (𝟗𝟎𝟎, 𝟎𝟎𝟎 − 𝟔𝟎𝟎, 𝟎𝟎𝟎)(𝑷⁄𝑨 , 𝟖%, 𝟏𝟎)
𝑷𝑾𝑨 = −𝟏, 𝟓𝟎𝟎, 𝟎𝟎𝟎 (𝟏 + 𝟎. 𝟔𝟖𝟎𝟗) + 𝟏𝟎𝟎, 𝟎𝟎𝟎(𝟎. 𝟔𝟖𝟎𝟗 + 𝟎. 𝟒𝟔𝟑𝟐) + 𝟑𝟎𝟎, 𝟎𝟎𝟎(𝟔. 𝟕𝟏𝟎)
𝑷𝑾𝑨 = −$𝟑𝟗𝟑, 𝟗𝟒𝟎
1
ECE 192, Spring 2023

𝑷𝑾𝑩 = −𝟐, 𝟎𝟎𝟎, 𝟎𝟎𝟎 + 𝟐𝟎𝟎, 𝟎𝟎𝟎(𝑷⁄𝑭 , 𝟖%, 𝟏𝟎) + (𝟏, 𝟏𝟎𝟎, 𝟎𝟎𝟎 − 𝟖𝟎𝟎, 𝟎𝟎𝟎)(𝑷⁄𝑨 , 𝟖%, 𝟏𝟎)
𝑷𝑾𝑩 = −𝟐, 𝟎𝟎𝟎, 𝟎𝟎𝟎 + 𝟐𝟎𝟎, 𝟎𝟎𝟎(𝟎. 𝟒𝟔𝟑𝟐) + 𝟑𝟎𝟎, 𝟎𝟎𝟎(𝟔. 𝟕𝟏𝟎)
𝑨𝑾𝑩 = $𝟏𝟎𝟓, 𝟔𝟒𝟎

Based on PW method, Alternative B should be selected.

c)

𝟏, 𝟓𝟎𝟎, 𝟎𝟎𝟎
𝑷𝑩𝑨 = = 𝟓 𝒚𝒆𝒂𝒓𝒔
𝟑𝟎𝟎, 𝟎𝟎𝟎

𝟐, 𝟎𝟎𝟎, 𝟎𝟎𝟎
𝑷𝑩𝑨 = = 𝟔. 𝟔𝟕 𝒚𝒆𝒂𝒓𝒔
𝟑𝟎𝟎, 𝟎𝟎𝟎
Based on Payback method, neither machine A nor B are acceptable since the required period is
at most three years.

Problem-3 Solution
First, we need to find the set of annuities “A” for which Charlie obtained a PW=56,740 at 10%
𝑷𝑾 = 𝟓𝟔, 𝟕𝟒𝟎 = −𝟏𝟖𝟎, 𝟎𝟎𝟎 + 𝑨(𝑷⁄𝑨 , 𝟏𝟎%, 𝟓)
𝟓𝟔, 𝟕𝟒𝟎 + 𝟏𝟖𝟎, 𝟎𝟎𝟎 𝟐𝟑𝟔, 𝟕𝟒𝟎
𝑨= = = $𝟔𝟐, 𝟒𝟓𝟏. 𝟐
(𝑷⁄𝑨 , 𝟏𝟎%, 𝟓) 𝟑. 𝟕𝟗𝟎𝟖

Now, we formulate the equation to find 𝒊∗ when 𝑷𝑾(𝒊∗ ) = 𝟎


𝟎 = −𝟏𝟖𝟎, 𝟎𝟎𝟎 + 𝟔𝟐, 𝟒𝟓𝟏. 𝟐(𝑷⁄𝑨 , 𝒊∗ , 𝟓)
(𝟏 + 𝒊∗ )𝟓 − 𝟏
𝟎 = −𝟏𝟖𝟎, 𝟎𝟎𝟎 + 𝟔𝟐, 𝟒𝟓𝟏. 𝟐 [ ∗ ]
𝒊 (𝟏 + 𝒊∗ )𝟓
(𝟏 + 𝒊∗ )𝟓 − 𝟏 𝟏𝟖𝟎, 𝟎𝟎𝟎
[ ∗ ∗ 𝟓
]= = 𝟐. 𝟖𝟖𝟐𝟐
𝒊 (𝟏 + 𝒊 ) 𝟔𝟐, 𝟒𝟓𝟏. 𝟐

2
ECE 192, Spring 2023

Now solving for 𝒊∗ , if:


𝒊∗ = 𝟏𝟎% → 𝟑. 𝟕𝟗𝟎𝟕
𝒊∗ = 𝟏𝟏% → 𝟑. 𝟔𝟗𝟓𝟗
𝒊∗ = 𝟏𝟓% → 𝟑. 𝟑𝟓𝟐𝟏
𝒊∗ = 𝟐𝟎% → 𝟐. 𝟗𝟗𝟏
𝒊∗ = 𝟐𝟓% → 𝟐. 𝟔𝟖𝟗𝟑

Then, using interpolation


𝟎. 𝟐𝟓 − 𝒊∗ 𝟎. 𝟐𝟓 − 𝟎. 𝟐𝟎
=
𝟐. 𝟔𝟖𝟗𝟑 − 𝟐. 𝟖𝟖𝟐𝟐 𝟐. 𝟔𝟖𝟗𝟑 − 𝟐. 𝟗𝟗𝟏
Solving for 𝒊∗
𝒊∗ = 𝟎. 𝟐𝟏𝟖𝟎 𝒐𝒓 𝟐𝟏. 𝟖%

Problem-4 Solution

Both projects have different service lives, then we use the IRR method with the AW analysis.
Moreover, this corresponds to a mutually exclusive project, then the IRR will be calculated over the
incremental investment. Since both projects include only costs, the Do-Nothing option is not
considered; hence, the Clip Job mower is the alternative with the lowest initial cost, it is considered as
the first alternative, and the challenger will be Lawn Guy mower.

The IRR will be given by:

𝑨𝑾𝑳𝑮−𝑪𝑱 = 𝟎 = −𝟑𝟓𝟎(𝑨⁄𝑷 , 𝒊∗ , 𝟏𝟎) + 𝟏𝟐𝟎(𝑨⁄𝑷 , 𝒊∗ , 𝟒) + (−𝟑𝟎 − 𝟔𝟎 + 𝟒𝟎 + 𝟔𝟎)


𝒊∗ (𝟏 + 𝒊∗ )𝟏𝟎 𝒊∗ (𝟏 + 𝒊∗ )𝟒
𝑨𝑾𝑳𝑮−𝑪𝑱 = 𝟎 = −𝟑𝟓𝟎 [ ] + 𝟏𝟐𝟎 [ ] + (−𝟑𝟎 − 𝟔𝟎 + 𝟒𝟎 + 𝟔𝟎)
(𝟏 + 𝒊∗ )𝟏𝟎 − 𝟏 (𝟏 + 𝒊∗ )𝟒 − 𝟏

Now solving for 𝒊∗ , if:


𝒊∗ = 𝟓% → 𝑨𝑾 = −𝟏. 𝟒𝟖𝟓
𝒊∗ = 𝟒% → 𝑨𝑾 = −𝟎. 𝟎𝟗𝟑
𝒊∗ = 𝟑% → 𝑨𝑾 = 𝟏. 𝟐𝟓𝟑

3
ECE 192, Spring 2023
𝟎. 𝟎𝟑 − 𝒊∗ 𝟎. 𝟎𝟑 − 𝟎. 𝟎𝟒
=
𝟏. 𝟐𝟓𝟑 𝟏. 𝟐𝟓𝟑 + 𝟎. 𝟎𝟗𝟑

𝒊∗ = 𝟎. 𝟎𝟑𝟗𝟑 𝒐𝒓 𝟑. 𝟗𝟑% < 𝑴𝑨𝑹𝑹

Since 𝒊∗ is lower than MARR, the preferred option is the Clip Job Mower.

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