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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 Hindwan 1039826
Eqbal Ahmed Amer 1037661
Yasmin Aldakak 1037417
Yasra Saeed Ahmad 1045630
Rahma Mohamed 1045481
Abstract
Engineering Economy is a subset of economics for application to engineering
projects where engineers seek solutions to problems, and the economic
viability of each potential solution is normally considered along with the
technical aspects. Our group project is about the changing scene of an
annual worth analysis. The case study problem discusses 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
Introduction:
.........................................................................................................................4
Discussion:.......................................................................................................5
Conclusion:....................................................................................................10
References: ...................................................................................................11
Appendix:
. 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 series of cash flows while
studying the period. Basically, it looks at the annualequivalent of all the cash flows
of an alternative.
This case study talks about Harry, he is an owner of an automobile battery distributorship in
Atlanta, Georgia, he performed an analysis 3 years ago when he decided to place surge protectors
In order to solve this case study, we will go through multiple steps to achieve the desired values.
First we have to make spreadsheet to find the value of the new estimates of Lloyd's protectors.
The second step is plotting a graph of the new estimates of Lloyd's protectors. Another step is to
find the recalculated annual worth for the Lloyds protectors by using the old first cost and
maintenance cost estimates for the first 3 years. Finally, we have to evaluate how the capital
recovery amount changed for the Lloyds protectors with these new estimates.
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Discussion
The spreadsheet in Figure 69 is the one Harry used to make the decision. Lloyds was the clear choice
due to its substantially larger AW value. The Lloyds protectors were installed.
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During a quick review this last year (year 3 of operation), it was obvious that the maintenance
costs and repair savings have not followed (and will not follow) the estimates made 3 years ago. In fact,
the maintenance contract cost (which includes quarterly inspection) is going from $300 to $1200 per year
next year and will then increase 10% per year for the next 10 years. Also, the repair savings for the last 3
years were $35,000, $32,000, and $28,000, as best as Harry can determine. He believes savings will
decrease by $2000 per year hereafter. Finally, these 3-year-old protectors are worth nothing on the market
now, so the salvage in 7 years is zero, not $3000.
Solution:
Compared to the present worth, future worth, and rate of return analysis, the
dirhams per year. It is also because the equivalent annual worth of the
or its alternative are known as the AW value. For n number of years, the AW
found at a specific MARR (Blank, 2012). Moreover, we have learnt that the
AW for one life cycle is the same for all life cycles, making our calculations
easy.
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In part 1 of the case study, it asked for newer estimated maintenance and
repair costs in comparison with the old spreadsheet [Fig 6-9]. By using excel,
Firstly, the investment value -36000 $ and the salvage value became zero
after the third year. Thus, the AW of investment and salvage is = -36000
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Secondly, the annual maintenance cost was -300 $ in the first 3 years
and then it became -1200 $ in the fourth year and it increased by 10%
thereafter.
1200(P/A, 10%, 15%, 7) (P/F, 15%, 3)] (A/P, 15%, 10) = -977.2 $
per year.
Thirdly, the repair savings in the first year was 35000 $, then 32000 $ in
8)] (P/F, 15%, 2)} (A/P, 15%, 10) = 26054 $ per year.
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2. Considering the changes in the maintenance cost and repair savings as
they have not followed the estimates made 3 years ago, we had to calculate the new estimates
keeping 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 3 years. The new estimated annual worth for the
Lloyds protectors can be evaluated by calculating the sum of the annual worth of investment
& salvage, annual maintenance and repair savings. The result is equal to: - 7173
$17,904 that is slightly larger than the PowrUp annual worth of $17,732.
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3. Capital recovery (CR) is the equivalent annual amount that an asset,
process, or system must earn each year to just recover the first cost and a
stated rate of return over its expected life. Salvage value is considered
when calculating CR. (Blank, 2012) The capital recovery (the investment
and salvage in our case) for the Lloyds protectors changed from a value
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Conclusion
In brief, since the objective of this case study is to
payless and profit more using the annual worth and
capital recovery calculations. It can be said that Harrys
decision is still right by choosing Lloyds protector over
power up even after the new estimation. In fact the
annual worth of Lloyds protector is higher than power up
as shown in the calculations and graphs done previously.
Besides the capital recovery calculation proves the same
fact, although it did slightly increase in the new
estimation.
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References
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Appendix:
A - Excel Spreadsheet:
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B - Graph:
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