Engineering Economy GEN200 Section 51 Date of Submission: May 30th, 2016 Submitted to: Dr. Samer Al Martini
CASE STUDY 1 THE CHANGING SCENE OF AN ANNUAL WORTH ANALYSIS
[ Group Project]
Done by: Ahlam Al in!"an
103#$26
%&'al Ahme! Amer
103(661
)a*min Al!a+a+ )a*ra Saee! Ahma!
103(1( 10-630
ahma Mohame! 10-$1
Abstract
%n/ineerin/ %conomy i* a *u'*et o economic* or application to en/ineerin/ project* "here en/ineer* *ee+ *olution* to pro'lem*, an! the econo mic ia'ility o each potential *olution i* normally con*i!ere! alon/ "ith the technical a*pect*. ur /roup project i* a'out the chan/i n/ *cene o an annual "orth analy*i*. he ca*e *tu!y pro'lem !i*cu**e* about an owner of an automobile battery distributorship wanting to estimate maintenance costs and repair savings projections for the next seven years.
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Table of content 5ntro!uction ......................................................................................................................... Di*cu**ion.......................................................................................................7onclu*ion.................................................................................................... 10 eerence* ................................................................................................... 11 Appen!i8 999999999999999999999999999999999999999 999999999. 12
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Introduction This economy project shows the changing scene of annual worth analysis. The Annual Worth method evaluates the required alternative as an equal
annual *erie* o ca*h :o"* "hile
*tu!yin/ the period. Basically, it loos at the annuale&uialent o all the ca*h :o"* o an alternatie.
This case study tals about !arry, he is an owner of an automobile battery distributorship in Atlanta, "eorgia, he performed an analysis # years ago when he decided to place surge protectors in$line for all his major pieces of testing equipment.
%n order to solve this case study, we will go through multiple steps to achieve the desired values. &irst we have to mae spreadsheet to find the value of the new estimates of 'loyd(s protectors. The second step is plotting a graph of the new estimates of 'loyd(s protectors. Another step is to find the recalculated annual worth for the 'loyd)s protectors by using the old first cost and maintenance cost estim ates for the first # years.
&inally, we have to evaluate how the capital
recovery amount changed for the 'loyd)s protectors with these new estimates.
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Discussion ur 7a*e Stu!y pro'lem i* a* ollo"* THE CHANGING SCENE OF AN ANNUAL WORTH ANALYSIS
Background and Informa!on
!arry, owner of an automobile battery distributorship in Atlanta, "eorgia, performed an economic analysis # years ago when he decided to place surge protectors in$line for all his major pieces of testing equipment. The estimates used and the annual worth analysis at *A++ -/ are summari0ed below. Two different manufacturers) protectors were compared.
The spreadsheet in &igure 123 is the one !arry used to mae the decision. 'loyd)s was the clear choice due to its substantially larger AW value. The 'loyd)s protectors were installed.
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4uring a quic review this last year 5year # of operation6, it was obvious that the maintenance costs and repair savings have not followed 5and will not follow6 the estimates made # years ago. %n fact, the maintenance contract cost 5which includes quarterly inspection6 is going from 7#88 to 7-988 per year next year and will then increase -8/ per year for the next -8 years. Also, the repair savings for the last # years were 7#,888, 7#9,888, and 79:,888, as best as !arry can determine. !e believes savings will decrease by 79888 per year hereafter. &inally, these #$year$old protectors are worth nothing on the maret now, so the salvage in ; years is 0ero, not 7#888.
Ca"# Sud$ E%#rc!"#"
-. se the old first cost and maintenance cost estimates for the first # years. %f these estimates had been made # years ago, would 'loyd)s still have been the economic choice= #. !ow has the capital recovery amount changed for the 'loyd)s protectors with these new estimates=
Solution: 7ompare! to the pre*ent "orth, uture "orth, an! rate o return analy*i*, the annual "orth metho! i* mo*t preerre! "hen !i*cu**in/ en/ineerin/ economic* ca*e *tu!ie*. he A; concept can 'e ea*ily /ra*pe! 'y a per*on "ith a *i/ni?lan+, 2012@. Moreoer, "e hae learnt that the A; or one lie cycle i* the *ame or all lie cycle*, ma+in/ our calculation* ea*y.
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5n part 1 o the ca*e *tu!y, it a*+e! or ne"er e*timate! maintenance an! repair co*t* in compari*on "ith the ol! *prea!*heet [=i/ 6#]. ?y u*in/ e8cel, "e came upon the*e a**umption* an! re*ult* 'elo"
1. A* it *ho"n a'oe, in our %8cel Sprea!*heet, "e calculate! the ne" e*timate* o Bloy!C* protector* u*in/ the *prea!*heet ta'le. =ir*tly, the ine*tment alue 36000 an! the *ala/e alue 'ecame Eero ater the thir! year. hu*, the A; o ine*tment an! *ala/e i* !"#000 $A%&' 15(' 10) !*1*" + ,er year-
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Secon!ly, the annual maintenance co*t "a* 300 in the
hereore, he
A;
o
maintenance
co*t .!"00$&%A'
15('
")!
1200$&%A' 10(' 15(' *) $&%/' 15(' ") $A%&' 15(' 10) !**-2 + ,er year-
hir!ly, the repair *ain/* in the
Moreoer, the annual "orth o Bloy!C* ne" e*timate* in each year i* e&ual to *u'tractin/ the maintenance co*t rom the repair *ain/*. 5n a!!ition, "e plotte! a /raph o the ne" e*timate* o Bloy!C* protector* a* it *ho"n in the chart 'elo".
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2. 7on*i!erin/ the chan/e* in the maintenance co*t an! repair *ain/* a* they have not followed the estimates made # years ago, we had to calculate the new estimates eeping in mind that the first cost that was used was the same as the old estimates, as well as, the maintenance cost estimates for the first # years. The new estimated annual worth for the 'loyd)s protectors can be evaluated by calculating the sum of the annual worth of investment ? salvage, annual maintenance and repai r savings. The result is equal to@
! *1*"
**-2 3 2#057 + 1*'07 . ence, the ne" e*timate! annual "orth i* +1*'07 that i* *li/htly lar/er than the Po"rHp annual "orth o 1(,(32.
hereore, the Bloy!I* protector* *houl! 'e cho*en a* the optimal choice. Moreoer, i the*e e*timate* "ere ma!e 3 year* a/o, compare! to the Po"rHp e*timate* o 1(,--$, they "oul! *till 'e the more economic choice a* it i* /reater in alue.
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3. J7apital recoery >7@ i* the e&uialent annual amount that an a**et, proce**, or *y*tem mu*t earn each year to ju*t recoer the ?lan+, 2012@ he capital recoery >the ine*tment an! *ala/e in our ca*e@ or the Bloy!I* protector* chan/e! rom a alue o (02- to an increa*e up to (1(3.
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8onclusion
5n 'rie, *ince the o'jectie o thi* ca*e *tu!y i* to payle** an! pro
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9eferences ?lan+, B. >2012@. Engineering Economy. Le" )or+ McGra"ill.
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A,,endi: •
A %8cel Sprea!*heet
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•
? Graph
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