EGEN 325 — Engineering Economic Analysis

HW #4 —Incremental PW/AW Analysis, Capitalized Cost (CC)

Due Wednesday, Oct. 24, 2018

4-1
You are considering three mutually exclusive design alternatives. Do nothing is also an option.
MARR is 15%.

Category A B C
First cost, $ 26,000 52,000 40,000
Annual Expense, $/yr 12,500 12,000 21,000
Annual revenue, $/yr 20,000 25,000 29,000
Salvage value, $ 5,000 9,000 8,000
Useful life, yrs 10 10 10
ROR 26.60% 22.13% 16.30%

a. What is the present worth of each alternative? Which would you choose?

b. Perform an incremental analysis using present worth. Which would you choose?

c. Perform an incremental analysis using rate of return. Which would you choose?
[Calculate ROR to two decimal places (e.g., 6.78%) by manual interpolation. Show your factor
notation and work.]

4-2
a. Calculate the PW of alternatives A & B in the following table using an MARR of 10%.

b. Complete the incremental cash flow column:

Incremental Cash
A B Flow, ∆(B–A)
First cost, $ 12,000 25,000
Annual revenue, $/yr 4,000 5,100
Useful life, yrs 7 7

c. Calculate the PW of the incremental cash flow.

d. Set up (but do not solve) the ROR calculation of the incremental cash flow using PW.
4-3
Three mutually exclusive alternatives are being considered:

A B C
First cost, $ 2,000 7,000 18,000
Ann. Revenue, $/yr 600 1,900 3,200
Useful life, yrs 5 5 10

a. Calculate the PW of each alternative using LCM and an MARR of 12%. Assume repeatability.

b. Compare the alternatives using AW analysis (do not use your answer from a.).

4-4
A government monument is expected to last forever. The first cost is $5,000,000. At the end of
year 7 there will be a one-time remodeling cost of $300,000. At the end of every 12 years there
will be a major remodeling cost of $500,000. Annual Operating & Maintenance Costs will total
$15,000 for each year.
i = 4% per year.

a. Calculate the capitalized cost.

b. Calculate the equivalent uniform annual cost (do not use the calculated capitalized cost in
a.).

c. Draw the fully labeled cash flow diagram.