Solutions to Chapter 11 Problems

11-1 Letting X denote the annual sales of the product, the annual worth for the venture can be determined as
follows:

AW(15%) = −$200,000(A/P, 15%, 5) − $50,000 – 0.1($25)X + $12.50X

= −$109,660 + $10X

From this equation, we find that X = 10,996 units per year. If it is believed that at least 10,966 units can
be sold each year, the venture appears to be economically worthwhile. Even though the firm does not
know with certainty how many units of the new device will be sold annually, the information provided
by the breakeven analysis will assist management in deciding whether or not to undertake the venture.

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11-2 The unknown is now the mileage driven each year (instead of fuel cost).

EUACH = $30,000(A/P, 3%, 5) + ($3.50/gal)(X mi/yr)/(30 mpg)

EUACG = $28,000(A/P, 3%, 5) + ($3.50/gal)(X mi/yr)/(25 mpg)

Setting EUACH = EUACG, we find the breakeven mileage to be X = 30,300 miles per year.

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11-3 The annual operating expenses of long-haul tractors equipped with the various deflectors are calculated
as a function of mileage dirven per year, X:

Windshear: [(X mi/yr)(0.92)(0.2 gal/mi)($3.00/gal)] = $0.552X / yr

Blowby: [(X mi/yr)(0.96)(0.2 gal/mi)($3.00/gal)] = $0.576X / yr
Air-vantage: [(X mi/yr)(0.90)(0.2 gal/mi)($3.00/gal)] = $0.540X / yr

EUAC can now be written in terms of X.

EUACW = $1,000(A/P, 10%, 10) + $10 + $0.552X = $172.70 + $0.552X

EUACB = $400(A/P, 10%, 10) + $5 + $0.576X = $70.08 + $0.576X
EUACA = $1,200(A/P, 10%, 5) + $5 + $0.540X = $321.56 + $0.540X

The breakeven values can be computed between each pair of deflectors by equating their EUAC
equations and solving for X.

Windshear and Blowby: X = 4,276 miles per year

Blowby and Air-vantage: X = 6,986 miles per year
Air-vantage and Windshear: X = 12,405 miles per year

The range over which each deflector is preferred is:

X ≤ 4,276 Select Blowby

4,276 ≤ X ≤ 12,405 Select Windshear
12,405 ≤ X Select Air-vantage

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11-4 The break-even deferment period, T′, is determined as follows:

Provide now: PW(costs) = $1,400,000 + $850,000(P/F, 10%, T′)

No Provision: PW(costs) = $1,250,000 + $1,150,000(P/F, 10%, T′)

If the difference between the two alternatives is examined, it can be seen that $150,000 now is being
traded off against $300,000 at a later date. The question is, what “later date” constitutes the break-even
point? By equating the PW(costs) and solving, we have 0.5 = (P/F, 10%, T′) and T′ = log(2)/log(1.1) =
7.27. Or, from Appendix C, we see that T′ is approximately seven years. Thus, if the additional space
will be required in less than seven years, it would be more economical to make immediate provision in
the foundation and structural details. If the addition would not likely be needed until after seven years,
greater economy would be achieved by making no such provision in the first structure.

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11-5 AW1 = −50,000 (A/P, 15%, 10) + 15,000 − 800 + 2,000 (A/F, 15%, 10)

= $4,333.6

AW2 = −75,000 (A/P, 15%, 12) + 20,000 − 1,200 + 2,500 (A/F, 15%, 12)

= $5,048.75 ← preferred.

(a) −75,000 (1 + x) (A/P, 15%, 12) + 20,000 − 1,200 + 2,500 (A/F, 15%, 12) < 4333.6

⇒ x = 0.05168

To alter the decision the investment in second equipment should be increased by 5.16% i.e by $3,876.15

(b) −50,000 (A/P, 15%, N) + 14,200 + 2,000 (A/F, 15%, N) = 0

⇒ N = 12.63 years

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11-6 Suppose that operating hour/year = x

Operating cost of tractor A = 20/0.7 × x × 0.2 = $5.714x/year.

Operating cost of tractor B = 15/0.8 × x × 0.2 = $3.75x/year.

−8000 (A/P, 10%, 6) + 1000 (A/F, 10%, 6) −5.714x = −10000 (A/P, 10%, 6)

+ 800(A/F, 10%, 6) − 3.75x

⇒x = 247 hours

When x = 250 hours

AW of tractor A = −8000 (0.2296) + 1000 (0.1296) −5.714 × 2500

= −$15992.2

AW of tractor −B = −10000 (.2296) + 800 (0.1296) −3.75 × 2500

= −$11567.32

Tractor B is recommended

1000
(b) AWA = −8000(.2296) + 1000(0.1296) −
x

750
AWB = −10000 (.2296) + 800(.1296) −
x

⇒x = 0.5153 or 51.53%

A will be preferred 51.53%.

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11-7 AWA = −58,000 (A/P, 12%, 4) + 3,000 + 2,800 (A/F, 12%, 4)

= −$15,507.84

−15,507.84 = −x (A/P, 12%, 6) + 2,500 + 5,000 (A/F, 12%, 6)

⇒ x = $76,578.289 Max Range

For no profit, no loss

0 = −0.2432x + 2500 + 616.

x = $12,812.5

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11-8 A

AW (4%) = –62,000 (A/P, 4%, 80) + 10,000 = $7,408.4

AW (8%) = $5,027.6

AW (12%) = $2,560

AW (15%) = $700

AW (4%) = –52,000 (A/P, 4%, 80) + 8,000 = $5,826.4

AW (8%) = $3,829.6

AW (12%) = $1,760.0

AW (15%) = $200

AW (4%) = $13,730.0

AW (8%) = $7,970.0

AW (12%) = $2,000

AW (15%) = –$2,500

AW (4%) = $6,701.0

AW (8%) = $4,589.0

AW (12%) = $2,400.0

AW (15%) = $750

On increasing MARR, the AW is decreasing continuously. The student should plot the graph using the
calculated values of AW with respect to the interest rate.

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11-9 After−tax, A$ Analysis: Let X = annual before−tax revenue requirement.

Annual Annual BTCF

EOY Investment Revenue Expenses (A$)
1
0 −$1,166,000 −$1,166,000
3
1 X − $519,750 −519,750+X
2 X − 545,738 −545,738+X
3 X − 573,024 −573,024+X
4 X − 601,676 −601,676+X
2
4 441,741 441,741
1
Capital Investment = (55 trucks)($21,000/truck) = $1,166,000
2
Market Value = MV4 = 0.35($1,166,000)(1.02)4 = $441,741
3
Annual Expenses in year k = (55 trucks)(20,000 mi/truck)($0.45/mi)(1.05)k
= $495,000(1.05)k

BTCF ATCF
EOY (A$) Depr. TI T(38%) (A$)
0 − $1,166,000 −−− −−− −−− − $1,166,000
1 −519,750 + X $388,628 − 908,378 + X 345,184−0.38X −174,566+0.62X
2 −545,738 + X 518,287 −1,064,025 + X 404,330−0.38X −141,408+0.62X
3 −573,024 + X 172,685 − 745,709 + X 283,369−0.38X −289,655+0.62X
4 −601,676 + X 86,401 − 688,077 + X 261,469−0.38X −340,207+0.62X
4 441,741 −−− 441,741 −167,862 273,879

PW(15%) = 0 = − $1,166,000 − $174,566(P/F,15%,1) − $141,408 (P/F,15%,2)

− $289,655(P/F,15%,3) − $340,207(P/F,15%,4)
+ $273,879(P/F,15%,4) + 0.62X(P/A,15%,4)
0 = − $1,653,096 + 1.77X

Thus, X = $1,653,096/1.77 = $933,953 in annual revenues per year.

Breakeven Point Interpretation: The equivalent uniform annual revenue of $933,953 per year is the
breakeven point between signing the contract (and purchasing the trucks, etc.), and not signing the
contract (and making no change in current operations).

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 ⎛ $45 ⎞ ⎛ 365 days ⎞
11-10 (a) Annual Revenues = (150 rooms)(0.6) ⎜ ⎟⎜ ⎟ = $1,478,250
⎝ room - day ⎠ ⎝ year ⎠
AW(10%) = $1,478,250 − $125,000 − $5,000,000(A/P,10%,15)
+ (0.2)($5,000,000)(A/F,10%,15) − $1,875,000 (A/P,10%,5)
= $232,625 > 0
Yes, the project is economically feasible.

(b) Sensitivity with respect to Decision Reversal

Capital Investment: $232,625* − $5,000,000(A/P,10%,15)X = 0

X = 0.3538 or 35.38%
*
Market value is assumed to remain constant at $1,000,000.

Occupancy Rate: $232,625 + 45(150)(365)(0.6)X = 0

X = −0.1574 or −15.74%

MARR: (find the IRR and calculate % change)

By trial and error, IRR = 14.3%.
Therefore, the MARR must increase by 14.3/10 − 1 = 43 %

The decision is most sensitive to changes in occupancy rate (requires the smallest percent change
to reverse the decision).

(c) Annual worth is a linear function with respect to capital investment and occupancy rate − we can
construct the plot using points from parts (a) and (b). Annual worth is non−linear with respect to
the MARR, therefore additional data points are necessary.

i % change AW
6% −40% $557,200
8% −20% 378,559
10% 0 232,625
12% 20% 112,679
14% 40% 12,808

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11-10 (c) continued

$1,000,000 Occupancy Rate

$800,000
Capital Investment
Annual Worth $600,000

$400,000

$200,000
MARR
$0

-$200,000

-$400,000
-40 -30 -20 -10 0 10 20 30 40
-$600,000
% Change

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11-11 (a) Let X = hours per day for new system.

EUACNew = $150,000(A/P, 1%, 60) − $50,000(A/F, 1%, 60) + ($40/hr)(X)(20 days/mo)

EUACUsed = $75,000(A/P, 1%, 60) − $20,000(A/F, 1%, 60)

+ ($40/hr)(8 hr/day)(20 day/mo)

Set EUACNew = EUACUsed and solve for X = 6.38 hours per day. This corresponds to an [(8 –
6.38)/8] × 100% = 20.3% reduction in labor hours.

(b) If the new system is expected to reduce labor hours by only 20%, the used system would be
recommended. This conclusion is confirmed by computing the PW of the incremental investment
($75,000) required the new system, PWΔ = −$946. But the margin of victory for the used system is
small, and management may elect to go ahead and purchase the new system because of intangible
factors such as reliability and prestige value of having the latest technology.

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11-12
Most Likely Estimates       
      New  Used 
Capital Investment    $150,000  $75,000  
Market Value    $50,000  $20,000  
Annual Labor Cost     $5,120   $6,400  
MARR (per month)  1.00%     

         
    Incremental AW   
% Change  MARR  MV (New)  Productivity (New) 
‐40%   $        205    $     (266)   $       (778)   
‐30%   $        149    $     (205)   $       (589)   
‐20%   $          93    $     (143)   $       (399)   
‐10%   $          36    $        (82)   $       (210)   
0%   $        (21)   $        (21)   $         (21)   
10%   $        (79)   $          40    $         168    
20%   $      (136)   $        101   $         357    
30%   $      (195)   $        163   $         547    
40%   $      (254)   $        224   $         736    

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11-13 The entries in the following table are AW values and were generated using the following equation:

AW(6%) = −$30,000,000(A/P, 6%, 40) – 300($4,000) + occupancy rate × rental fee × 300

    Occupancy Rate    
Rental Fee  75%  80% 85% 90% 95%  100%
$6,000   ($1,843,846)  ($1,753,846) ($1,663,846) ($1,573,846) ($1,483,846)  ($1,393,846)
$7,000   ($1,618,846)  ($1,513,846) ($1,408,846) ($1,303,846) ($1,198,846)  ($1,093,846)
$8,000   ($1,393,846)  ($1,273,846) ($1,153,846) ($1,033,846) ($913,846)  ($793,846)
$9,000   ($1,168,846)  ($1,033,846) ($898,846) ($763,846) ($628,846)  ($493,846)
$10,000   ($943,846)  ($793,846) ($643,846) ($493,846) ($343,846)  ($193,846)
$11,000   ($718,846)  ($553,846) ($388,846) ($223,846) ($58,846)  $106,154 
$12,000   ($493,846)  ($313,846) ($133,846) $46,154  $226,154   $406,154 
$13,000   ($268,846)  ($73,846) $121,154  $316,154  $511,154   $706,154 
$14,000   ($43,846)  $166,154  $376,154  $586,154  $796,154   $1,006,154 
$15,000   $181,154   $406,154  $631,154  $856,154  $1,081,154   $1,306,154 
$16,000   $406,154   $646,154  $886,154  $1,126,154  $1,366,154   $1,606,154 
$17,000   $631,154   $886,154  $1,141,154  $1,396,154  $1,651,154   $1,906,154 
$18,000   $856,154   $1,126,154  $1,396,154  $1,666,154  $1,936,154   $2,206,154 

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11-14 (a) Analysis at most likely estimates:

PW(15%) = −$30,000 + ($20,000 = $5,000) (P/A,15%,5) + $1,000 (P/F,15%,5)

= $20,780.20

Sensitivity to changes in capital investment:

+5%: PW(15%) = −$30,000(1.05) _ ($20,000 − $5,000)(P/A,15%,5) +

$1,000(P/F,15%,5) = −$19,280.20

−5%: PW*15%) = −$30,000(0.95) + ($20,000 − $5,000)(P/A,15%,5) +

$1,000(P/F,15%,5) = $22,280.20

Breakeven percent change:

PW(15%) = 0 = −$30,000(1 + x%) + ($20,000 − $5,000)(P/A,15%,5) +

$1,000(P/F,15%,5)
x = 0.693 or +69.3% increase in capital investment cost

Sensitivy to changes in annual expenses:

+10%: PW(15%) = −$30,000 + [$20,000 − $5,000(1.1)](P/A,15%,5) +

$1,000(P/F,15%,5) = $19,104.10

−10%: PW(15%) = −$30,000 + [$20,000 − $5,000)(0.9)](P/A,15%,5) +

$1,000(P/F,15%,5) = $22,456.30

Breakeven percent change:

PW(15%) = 0 = −$30,000 + [$20,000 − $5,000(1 + x%)](P/A,15%,5) +

$1,000(P/F,15%,5)
x = 1.24 or +124% increase in annual expenses

Sensitivity to changes in annual revenue:

+20%: PW(15%) = −$30,000 + [$20,000(1.2) − $5,000](P/A,15%,5) + $1,000(P/F,15%,5)

= $34,189

−20%: PW(15%) = −$30,000 + [$20,000(0.8) − $5,000](P/A,15%,5) + $1,000(P/F,15%,5)

= $7,371.40

Breakeven percent change:

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11-14 (a) continued
PW(15%) = 0 = −$30,000 + [$20,000(1 + x%) = $5,000](P/A,15%,5) + $1,000(P/F,15%,5)
x = −0.31 or – 31% (decrease in annual revenues)
Sensitivity to changes in market value:

+20%: PW(15%) = −$30,000 + ($20,000 − $5,000)(P/A,15%,5) + $1,000(1.2)(P/F,15%,5)

= $20,879.64

−20%: PW(15%) = −$30,000 + ($20,000 − $5,000)(P/A,15%,5) + $1,000(0.8)(P/F,15%,5)

= $20,680.76

Breakeven percent change:

PW(15%) = 0 = −$30,000 + ($20,000 − $5,000)(P/A,15%,5) +

$1,000(1 + x%)(P/F,15%,5)
x = −41.79 or −417.9% (decrease in market value)

Sensitivity to changes in useful life:

At +20%, n = 6
PW(15%) = −$30,000 + ($20,000 − $5,000)(P/A,15%,6) + $1,000(P/F,15%,6)
= $27,199.80

At −20%, n = 4
PW(15%) = −$30,000 + ($20,000 − $5,000)(P/A,15%,4) + $1,000(P/F,15%,4)
= $13,396.80

Breakeven percent change:

At n = 3 (−40%):
PW(15%) = −$30,000 + ($20,000 − $5,000)(P/A,15%,3) + $1,000(P/F,15%,3)
= $4,905.50

At n =2 (−60%):
PW(15%) = −$30,000 + ($20,000 − $5,000)(P/A,15%,2) + $1,000(P/F,15%,2)
= −$4,858.40
Breakeven life ≈ 2.5years, a −50% change

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11-14 (a) continued

Recommendation: Proceed with the project. PW is positive for values of factors (changed
individually) within stated accuracy ranges. However, if all factors are at their worst values, PW(15%)
= −$1,065 [capital investment at +5%, annual expenses at +10%, annual revenues, market value, and
useful life at −20%].

Annual
Revenues
Capital
35 Investment
Useful
Life
30
PW $20,780 Market
(Thousands 25 Value
of Dollars)
20

15 Annual
Expenses
10

−60 −50 −40 −30 −20 −10 0 10 20 30 40 50 60 70

Percent Devation Changes from Most Likely Estimate

(b) Factors can be ranked base on the breakeven percent change.

Highest need Annual Revenues −31%

Useful Life −50%
Capital Investment +69.3%
Annual Expense +124%
Lowest need Market Value −418%

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11-15 Repair cost = $5,000:
PW(i'%) = 0 = −$10,000 + $4,000(P/A,i'%,5) − $5,000(P/F,i'%,3)
By trial and error, IRR = 15.5%

Repair cost = $7,000:

PW(i'%) = 0 = −$10,000 + $4,000(P/A,i'%,5) − $7,000(P/F,i'%,3)
By trial and error, IRR = 9.6%

Repair cost = $3,000

PW(i'%) = 0 = −$10,000 + $4,000(P/A,i'%,5) − $3,000(P/F,i'%,3)
By trial and error, IRR = 21%

The sensitivity analysis indicates that if the repairs at the end of year 3 cost $5,000 or less, it will be
economical to invest in the machine. However, if the repairs cost $7,000, the IRR of the purchase is less
than the MARR.

A follow−up analysis would be to determine the maximum repair cost that would still result in the
desired return of 10%. Let R = repair cost at the end of year 3.

PW(10%) = 0 = − $10,000 + $4,000(P/A,10%,5) − R (P/F,10%,3)

0.7513(R) = $4,163.20
R = $6,872

As long as the repair cost at the end of year 3 does not exceed $6,872 (which represents a 37.44%
increase over the estimated cost of $5,000), the IRR of the purchase will be ≥ 10%.

697
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11-16 Let x = amount of rebate. Then the purchase price with 2.9% financing is $30,000 and the purchase
price with the 8.9% financing is $30,000 – x. We want to find the value of x such that the monthly
payment is the same. Using Excel we can easily find the monthly payment of the 2.9% plan:
PMT(0.029/12, 48, −30,000) = $662.70. Then

30,000 – x = PV(0.089/12, 48, −662.70) = $26,681.53

and x = $3,318.47. If you are offered a rebate less than this amount then you should take the 2.9%
financing offer.

698
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11-17 1) Assume salvage value for each system = 0
2) The difference in user cost will be projected as a savings for system #2.
Savings = $0.02/vehicle
3) There are approximately 8,760 hours/year

System 1: AW method
CR = $32,000(A/P,10%,10) = $5,206.40
Annual Maintenance = $75

(28 kW)(8,760 hr/yr)($0.08 / kWh )

Operation Cost = = $25,157 per year
0.78

AC#1 = $5,206.40 + $75 + $25,157 = $30,438.40

System #2:
CR = $45,000(A/P,10%,15) = $5,917.50
Annual Maintenance = $100

(34 kW)(8,760 hr/yr)($0.08 / kWh )

Operation Cost = = $26,475
0.90

Let N = # vehicles using intersection

Savings per vehicle = ($0.24 − $0.22) N = $0.02 N

AC#2 = $5,917.50 + $100 + $26,475 – 0.2N = $32,492.50 − $0.02N

For Breakeven point:

$30,438.40 = $32,492.50 − $0.02N and N = 102,705 cars per year

For ADT = Average Daily Traffic

102,705
N= = 282 vehicles/day (rounded to next highest integer)
365

699
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11-18 Let X = annual Btu requirement (in 103 Btu)

AWoil (10%) = −$80,000(A/P,10%,20) + $4,000 − ($2.20/140)(X)

= −$5,400 − $0.0157X

AWgas (10%) = −$60,000(A/P,10%,20) + $6,000 − ($0.04/1)(X)

= −$1,050 − $0.04X

To find breakeven value of X, set AWoil (10%) = AWgas (10%) and solve for X.

−$5,400 − $0.0157X = −$1,050 − $0.04X

X = 179,012 or 179,012,000 Btu per year

Now let's examine the sensitivity of the decision to changes in the annual Btu requirement. The
following table and graph indicate that the conversion to natural gas is preferred if the annual Btu
requirement is less than the breakeven point, else the conversion to oil is preferred.

Annual Worth
% change in X Oil Gas
−30 −$7,430 −$6,125
−20 −7,720 −6,850
−10 −8,010 −7,575
0 −8,300 −8,300
10 −8,590 −9,025
20 −8,880 −9,750
30 −9,170 −10,475

$0

- $2,000

- $4,000
AW Gas
- $6,000
Oil
- $8,000

- $10,000

- $12,000
-30% -20% -10% 0% 10% 20% 30%
Percent Change in Annual Btu Requirement

700
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11-19 Company A

AW8yrs = –100000 (A/P, 12%, 8) + 45000 + 40000(A/F, 12%, 8)

= $28122

AW10yrs = –100000 (A/P, 12%, 10) + 40000 (A/F, 12%, 10) + 45000

AW12yrs = –100000 (A/P, 12%, 12) + 40,000 (A/F, 12%, 12) + 45000

Company B

AW8yrs = –150,000 (A/P, 12%, 8) + 50000

AW10yrs = –150,000 (A/P, 12%, 10) + 50000

AW12yrs = –150,000 (A/P, 12%, 12) + 50000

Company C

AW8yrs = –125000 (A/P, 12%, 8) + 30000 (A/F, 12%, 8) + 35000

AW10yrs = –125000 (A/P, 12%, 10) + 30000 (A/F, 12%, 10) + 35000

AW12yrs = –125000 (A/P, 12%, 10) + 30000 (A/F, 12%, 10) + 35000

MARR

AW 8% 10% 12%

Project A $28122 $29580 $30516

Project B $19805 $23450 $25790

Project C $12276.5 $14585 $16067

Project A is superior for all MARR.

701
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11-20 Build 4−lane bridge now:
PW(12%) = −$350,000

Build two−lane bridge now:

Optimistic: widen bridge to four lanes in 7 years
PW(12%) = −$200,000 − [$200,000 + (7)($25,000)](P/F,12%,7) = −$369,613

Most Likely: widen bridge to four lanes in 5 years

PW(12%) = −$200,000 − [$200,000 + (5)($25,000)](P/F,12%,5) = −$384,405

Pessimistic: widen bridge to four lanes in 4 years

PW(12%) = −$200,000 − [$200,000 + (4)($25,000)](P/F,12%,4) = −$390,650

Recommend building the 4−lane bridge now. In this problem, there is no difficulty in interpreting the
results since building the 4−lane bridge now is preferred to a delay in widening the bridge for 7 years
(optimistic estimate).

The advantage of pessimistic, most likely, and optimistic estimates is that the uncertainty involved is
made explicit. Therefore, the information should be more useful in decision−making. However, when
mixed results are obtained, significant judgement is required in reaching a decision. Mixed results
would occur in this problem, for example, if the PW of a 7−year delay in widening the bridge were less
than $350,000.

702
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11-21 AWA = $20000 (A/P, 10%, 5) + 20 × x × 1.2

AWB = −$16000 (A/P, 10%, 5) + 18 × x × 1.2

B

⇒x = 440 kilometer

Up to 440 km, car A is more economical.

703
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11-22 (a) Alternative A:

EOY BTCF Depr TI T(40%) ATCF

0 - $108,000,000 --- --- --- - $108,000,000
1 - 3,460,000 $5,400,000 - $8,860,000 $3,544,000 84,000
2 - 3,460,000 10,260,000 - 13,720,000 5,488,000 2,028,000
3 - 3,460,000 9,234,000 - 12,694,000 5,077,600 1,617,600
4 - 3,460,000 8,316,000 - 11,776,000 4,710,400 1,250,400
5 - 3,460,000 7,484,400 - 10,944,400 4,377,760 917,760
6 - 3,460,000 6,728,400 - 10,188,400 4,075,360 615,360
7 - 3,460,000 6,372,000 - 9,832,000 3,932,800 472,800
8 - 3,460,000 6,372,000 - 9,832,000 3,932,800 472,800
9 - 3,460,000 6,382,800 - 9,842,800 3,937,120 477,120
10 - 3,460,000 6,372,000 - 9,832,000 3,932,800 472,800
11 - 3,460,000 6,382,800 - 9,842,800 3,937,120 477,120
12 - 3,460,000 6,372,000 - 9,832,000 3,932,800 472,800
13 - 3,460,000 6,382,800 - 9,842,800 3,937,120 477,120
14 - 3,460,000 6,372,000 - 9,832,000 3,932,800 472,800
15 - 3,460,000 6,382,800 - 9,842,800 3,937,120 477,120
16 - 3,460,000 3,186,000 - 6,646,000 2,658,400 - 801,600
17 - 3,460,000 0 - 3,460,000 1,384,000 - 2,076,000
18 - 3,460,000 0 - 3,460,000 1,384,000 - 2,076,000
19 - 3,460,000 0 - 3,460,000 1,384,000 - 2,076,000
20 - 3,460,000 0 - 3,460,000 1,384,000 - 2,076,000
20 43,200,000 --- 43,200,000 - 17,280,000 25,920,000

20
PW(10%) = ∑
k=0
ATCFk (P/F,10%, k) = − $99,472,154

704
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11-22 (a) continued

Alternative B: Compute ATCFs for current estimate of capital investment.

Using the ATCFs shown in the following table:

20
PW(10%) = ∑
k=0
ATCFk (P/F,10%, k) = − $79,065,532

ATCFs for Alternative B given original capital investment amount:

EOY BTCF Depr TI T(40%) ATCF

0 - $17,000,000 --- --- --- - $17,000,000
1 - 12,400,000 $ 850,000 - $13,250,000 $5,300,000 - 7,100,000
2 - 12,400,000 1,615,000 - 14,015,000 5,606,000 - 6,794,000
3 - 12,400,000 1,453,500 - 13,853,500 5,541,400 - 6,858,600
4 - 12,400,000 1,309,000 - 13,709,000 5,483,600 - 6,916,400
5 - 15,400,000 1,178,100 - 16,578,100 6,631,240 - 8,768,760
6 - 12,400,000 1,059,100 - 13,459,100 5,383,640 - 7,016,360
7 - 12,400,000 1,003,000 - 13,403,000 5,361,200 - 7,038,800
8 - 12,400,000 1,003,000 - 13,403,000 5,361,200 - 7,038,800
9 - 12,400,000 1,004,700 - 13,404,700 5,361,880 - 7,038,120
10 - 15,400,000 1,003,000 - 16,403,000 6,561,200 - 8,838,800
11 - 12,400,000 1,004,700 - 13,404,700 5,361,880 - 7,038,120
12 - 12,400,000 1,003,000 - 13,403,000 5,361,200 - 7,038,800
13 - 12,400,000 1,004,700 - 13,404,700 5,361,880 - 7,038,120
14 - 12,400,000 1,003,000 - 13,403,000 5,361,200 - 7,038,800
15 - 15,400,000 1,004,700 - 16,404,700 6,561,880 - 8,838,120
16 - 12,400,000 501,500 - 12,901,500 5,160,600 - 7,239,400
17 - 12,400,000 0 - 12,400,000 4,960,000 - 7,440,000
18 - 12,400,000 0 - 12,400,000 4,960,000 - 7,440,000
19 - 12,400,000 0 - 12,400,000 4,960,000 - 7,440,000
20 - 12,400,000 0 - 12,400,000 4,960,000 - 7,440,000
20 0 --- 0 0 0

705
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11-22 (a) continued

Alternative B (revised to include extra investment permissible to breakeven)

EOY BTCF Depr TI T(40%) ATCF

0 - $42,731,490 --- --- --- - $42,731,490
1 - 12,400,000 $2,136,574 - $14,536,574 $5,814,630 - 6,585,370
2 - 12,400,000 4,059,492 - 16,459,492 6,583,797 - 5,816,203
3 - 12,400,000 3,653,542 - 16,053,542 6,421,417 - 5,978,583
4 - 12,400,000 3,290,325 - 15,690,325 6,276,130 - 6,123,870
5 - 15,400,000 2,961,292 - 18,361,292 7,344,517 - 8,055,483
6 - 12,400,000 2,662,172 - 15,062,172 6,024,869 - 6,375,131
7 - 12,400,000 2,521,158 - 14,921,158 5,968,463 - 6,431,537
8 - 12,400,000 2,521,158 - 14,921,158 5,968,463 - 6,431,537
9 - 12,400,000 2,525,431 - 14,925,431 5,970,172 - 6,429,828
10 - 15,400,000 2,521,158 - 17,921,158 7,168,463 - 8,231,537
11 - 12,400,000 2,525,431 - 14,925,431 5,970,172 - 6,429,828
12 - 12,400,000 2,521,158 - 14,921,158 5,968,463 - 6,431,537
13 - 12,400,000 2,525,431 - 14,925,431 5,970,172 - 6,429,828
14 - 12,400,000 2,521,158 - 14,921,158 5,968,463 - 6,431,537
15 - 15,400,000 2,525,431 - 17,925,431 7,170,172 - 8,229,828
16 - 12,400,000 1,260,579 - 13,660,579 5,464,232 - 6,935,768
17 - 12,400,000 0 - 12,400,000 4,960,000 - 7,440,000
18 - 12,400,000 0 - 12,400,000 4,960,000 - 7,440,000
19 - 12,400,000 0 - 12,400,000 4,960,000 - 7,440,000
20 - 12,400,000 0 - 12,400,000 4,960,000 - 7,440,000
20 0 --- 0 0 0

The above solution for Alternative B is the result of a trial and error procedure for obtaining
identical present worths of ATCFs.

Extra Capital = $42,731,490 − $17,000,000 = $25,731,490

This solution takes into account depreciation credits arising from the extra capital that can be
invested in Alternative B to breakeven with Alternative A.

706
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11-22 (b) Coterminate both alternatives at the end of year 10.

Alternative A:

EOY BTCF Depr TI T(40%) ATCF

0 - $108,000,000 --- --- --- - $108,000,000
1 - 3,460,000 $5,400,000 - $8,860,000 $3,544,000 84,000
2 - 3,460,000 10,260,000 - 13,720,000 5,488,000 2,028,000
3 - 3,460,000 9,234,000 - 12,694,000 5,077,600 1,617,600
4 - 3,460,000 8,316,000 - 11,776,000 4,710,400 1,250,400
5 - 3,460,000 7,484,400 - 10,944,400 4,377,760 917,760
6 - 3,460,000 6,728,400 - 10,188,400 4,075,360 615,360
7 - 3,460,000 6,372,000 - 9,832,000 3,932,800 472,800
8 - 3,460,000 6,372,000 - 9,832,000 3,932,800 472,800
9 - 3,460,000 6,382,800 - 9,842,800 3,937,120 477,120
10 - 3,460,000 3,186,000 - 6,646,000 2,658,400 - 801,600
10 43,200,000 --- 4,935,600 - 1,974,240 41,225,760
*MV10 = $43,200,000; BV10 = $38,264,400

10
PW(10%) = ∑k =0
ATCFk (P/F,10%, k) = − $87,010,230

Alternative B:

EOY BTCF Depr TI T(40%) ATCF

0 - $17,000,000 --- --- --- - $17,000,000
1 - 12,400,000 $850,000 - $13,250,000 $5,300,000 - 7,100,000
2 - 12,400,000 1,615,000 - 14,015,000 5,606,000 - 6,794,000
3 - 12,400,000 1,453,500 - 13,853,500 5,541,400 - 6,858,600
4 - 12,400,000 1,309,000 - 13,709,000 5,483,600 - 6,916,400
5 - 15,400,000 1,178,100 - 16,578,100 6,631,240 - 8,768,760
6 - 12,400,000 1,059,100 - 13,459,100 5,383,640 - 7,016,360
7 - 12,400,000 1,003,000 - 13,403,000 5,361,200 - 7,038,800
8 - 12,400,000 1,003,000 - 13,403,000 5,361,200 - 7,038,800
9 - 12,400,000 1,004,700 - 13,404,700 5,361,880 - 7,038,120
10 - 15,400,000 501,500 - 15,901,500 6,360,600 - 9,039,400
10 0 --- - 6,023,100 2,409,240 2,409,240
*MV10 = 0; BV10 = $6,023,100

10
PW(10%) = ∑k =0
ATCFk (P/F,10%, k) = − $60,788,379

707
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11-22 (b) continued

If the study period is reduced to 10 years, Alternative B would still be recommended.

Sensitivity of Alternative B to cotermination at EOY 10:

⎛ − $79,065,532 + $60,788,379 ⎞
⎜ ⎟ ×100% = 23.1% less expensive.
⎝ − $79,065,532 ⎠

(c) If our annual operating expenses of Alternative B double, the extra present worth of cost in part (a)
equals:

(−$2.1 million)(1 − 0.4) • (P/A, 10%, 20) = −$10,727,090.

This makes the total present worth of Alternative B equal to:

−$79,065,532 − $10,727,090 = −$89,792,622.

Because −$89,792,622 > −$99,472,154, the initial decision to adopt Alternative B is not reversed.

EOY BTCF Depr TI T (40%) ATCF

0 - $17,000,000 --- --- --- - $17,000,000
1 - 14,500,000 $ 850,000 - $15,350,000 $6,140,000 - 8,360,000
2 - 14,500,000 1,615,000 - 16,115,000 6,446,000 - 8,054,000
3 - 14,500,000 1,453,500 - 15,953,500 6,381,400 - 8,118,600
4 - 14,500,000 1,309,000 - 15,809,000 6,323,600 - 8,176,400
5 - 17,500,000 1,178,100 - 18,678,100 7,471,240 - 10,028,760
6 - 14,500,000 1,059,100 - 15,559,100 6,223,640 - 8,276,360
7 - 14,500,000 1,003,000 - 15,503,000 6,201,200 - 8,298,800
8 - 14,500,000 1,003,000 - 15,503,000 6,201,200 - 8,298,800
9 - 14,500,000 1,004,700 - 15,504,700 6,201,880 - 8,298,120
10 - 17,500,000 1,003,000 - 18,503,000 7,401,200 - 10,098,800
11 - 14,500,000 1,004,700 - 15,504,700 6,201,880 - 8,298,120
12 - 14,500,000 1,003,000 - 15,503,000 6,201,200 - 8,298,800
13 - 14,500,000 1,004,700 - 15,504,700 6,201,880 - 8,298,120
14 - 14,500,000 1,003,000 - 15,503,000 6,201,200 - 8,298,800
15 - 17,500,000 1,004,700 - 18,504,700 7,401,880 - 10,098,120
16 - 14,500,000 501,500 - 15,001,500 6,000,600 - 8,499,400
17 - 14,500,000 0 - 14,500,000 5,800,000 - 8,700,000
18 - 14,500,000 0 - 14,500,000 5,800,000 - 8,700,000
19 - 14,500,000 0 - 14,500,000 5,800,000 - 8,700,000
20 - 14,500,000 0 - 14,500,000 5,800,000 - 8,700,000
20 0 --- 0 0 0

708
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 Solutions to Spreadsheet Exercises

11-23 Left as an individual exercise. See F11-6.xls.

709
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11-24 See P11-24.xls

Single Factor Change: Fuel Economy of Gas Engine (mpg)
24 25 26 27
Extra Cost $1,200 12% $287.41 $262.60 $239.69 $218.49
$ / gal $3.00 MARR 13% $279.12 $254.31 $231.41 $210.20
Miles/yr             20,000 14% $270.76 $245.95 $223.05 $201.84
15% $262.32 $237.51 $214.61 $193.40
Fuel Economy (mpg):
Gas engine 25
% Improvement 33%
Diesel engine 33.25

MARR 14%

AW(fuel savings) $          595.49
Net AW $          245.95

710
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11-25 See P11-25.xls.

MARR 20% Useful Life 20

Installation  Operating Hours 
Expense ($/in.) 150 per Year 8,760
Annual Tax and  Cost of Heat Loss 
Insurance Rate 5% ($/Btu) 0.00004

Insulation  Heat Loss  Installation  Annual Taxes and  Cost of Heat  Equiv. Uniform 

Thickness (in.) (Btu/hr) Expense Insurance Removal ($/yr.) Annual Cost
3 4,400 450 22.5 1541.76 $1,656.67
4 3,400 600 30.0 1191.36 $1,344.57
5 2,800 750 37.5 981.12 $1,172.64
6 2,400 900 45.0 840.96 $1,070.78
7 2,000 1050 52.5 700.80 $968.92
8 1,800 1200 60.0 630.72 $937.15

Change in Cost Equivalent Uniform Annual Cost
of Heat Loss 3 4 5 6 7 8
‐50% $885.79 $748.89 $682.08 $650.30 $618.52 $621.79
‐40% $1,039.97 $868.03 $780.19 $734.40 $688.60 $684.86
‐30% $1,194.14 $987.17 $878.30 $818.49 $758.68 $747.93
‐20% $1,348.32 $1,106.30 $976.41 $902.59 $828.76 $811.00
‐10% $1,502.49 $1,225.44 $1,074.53 $986.68 $898.84 $874.08
0% $1,656.67 $1,344.57 $1,172.64 $1,070.78 $968.92 $937.15
10% $1,810.85 $1,463.71 $1,270.75 $1,154.88 $1,039.00 $1,000.22
20% $1,965.02 $1,582.85 $1,368.86 $1,238.97 $1,109.08 $1,063.29
30% $2,119.20 $1,701.98 $1,466.97 $1,323.07 $1,179.16 $1,126.36
40% $2,273.37 $1,821.12 $1,565.09 $1,407.16 $1,249.24 $1,189.44
50% $2,427.55 $1,940.25 $1,663.20 $1,491.26 $1,319.32 $1,252.51

711
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11-25 continued

MARR 20% Useful Life 20

Installation Operating
Expense ($/in.) $ 150 Hours per Yr. 8,760
Annual Tax and Cost of Heat
Insurance Rate 5% Loss ($/Btu) $ 0.00002

Insulation Heat Loss Installation Annual Taxes Cost of Heat Equivalent

Thickness (in.) (Btu/hr) Expense and Insurance Removal ($/yr) Annual Worth
3 4,400 $ (450) $ (22.50) $ (770.88) $ (885.79)
4 3,400 $ (600) $ (30.00) $ (595.68) $ (748.89)
5 2,800 $ (750) $ (37.50) $ (490.56) $ (682.08)
6 2,400 $ (900) $ (45.00) $ (420.48) $ (650.30)
7 2,000 $ (1,050) $ (52.50) $ (350.40) $ (618.52)
8 1,800 $ (1,200) $ (60.00) $ (315.36) $ (621.79)

Equivalent Annual Worth

3 4 5 6 7 8
-50% $ (500.35) $ (451.05) $ (436.80) $ (440.06) $ (443.32) $ (464.11)
-40% $ (577.44) $ (510.62) $ (485.85) $ (482.11) $ (478.36) $ (495.64)
-30% $ (654.53) $ (570.19) $ (534.91) $ (524.16) $ (513.40) $ (527.18)
-20% $ (731.61) $ (629.76) $ (583.97) $ (566.20) $ (548.44) $ (558.72)
-10% $ (808.70) $ (689.33) $ (633.02) $ (608.25) $ (583.48) $ (590.25)
0% $ (885.79) $ (748.89) $ (682.08) $ (650.30) $ (618.52) $ (621.79)
10% $ (962.88) $ (808.46) $ (731.13) $ (692.35) $ (653.56) $ (653.32)
20% $ (1,039.97) $ (868.03) $ (780.19) $ (734.40) $ (688.60) $ (684.86)
30% $ (1,117.05) $ (927.60) $ (829.25) $ (776.44) $ (723.64) $ (716.40)
40% $ (1,194.14) $ (987.17) $ (878.30) $ (818.49) $ (758.68) $ (747.93)
50% $ (1,271.23) $ (1,046.73) $ (927.36) $ (860.54) $ (793.72) $ (779.47)

712
© 2012 Pearson Education, Inc., Upper Saddle River, NJ. All rights reserved. This publication is protected by Copyright and written permission should be
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11-26 See P11-26.xls.

O ML P
Capital Investment $90,000 $100,000 $120,000
Useful Life (years) 12 10 6
Market Value $30,000 $20,000 $0
Net annual cash flow $35,000 $30,000 $20,000
MARR 11% 11% 11%
Annual Worth $22,458 $14,216 ‐$8,365

Net Annual Cash Flow
O ML P
Useful Life $35,000 $30,000 $20,000
O 12 $20,478 $15,478 $5,478
ML 10 $19,216 $14,216 $4,216
P 6 $13,890 $8,890 ($1,110)

713
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obtained from the publisher prior to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by any means, electronic,
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11-27 See P11-27.xls.

Most Likely Estimates: % Change Inv. MV Ann. Sav.

‐40% $4,852,706 ($290,801) ($2,344,870)
Investment $10,000,000 ‐30% $3,852,706 ($4,924) ($1,545,476)
Market Value $5,000,000 ‐20% $2,852,706 $280,952 ($746,082)
Annual Savings $2,800,000 ‐10% $1,852,706 $566,829 $53,312
0% $852,706 $852,706 $852,706
MARR 15% 10% ($147,294) $1,138,582 $1,652,100
20% ($1,147,294) $1,424,459 $2,451,494
Present Worth $852,706 30% ($2,147,294) $1,710,336 $3,250,887
40% ($3,147,294) $1,996,212 $4,050,281

Breakeven Points:

Investment $10,852,706
Market Value $5,000,000
Annual Savings $2,800,000

MARR 15%

Present Worth $0.00

Investment $10,000,000
Market Value $3,508,613
Annual Savings $2,800,000

MARR 15%

Present Worth $0

Investment $10,000,000
Market Value $5,000,000
Annual Savings $2,501,327

MARR 15%

Present Worth $0

714
© 2012 Pearson Education, Inc., Upper Saddle River, NJ. All rights reserved. This publication is protected by Copyright and written permission should be
obtained from the publisher prior to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by any means, electronic,
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11-28 See P11-28.xls.

CFL ILB
Investment Cost (per
bulb) $ 2.00 $ 0.50
Installation Cost (per bulb) $ 3.00 $ 2.00
Wattage 13 60
Life (years) 3 1
Disposal cost (per bulb) $ - $ -

Capital Recovery $ (2,082) $ (2,800)

Electricity $ - $ -
Disposal $ - $ -
Total Annual Cost $ (2,082) $ (2,800)

Present Worth $ (10,341) $ (13,909)

This spreadsheet was used to compile the following table of results.

715
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obtained from the publisher prior to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by any means, electronic,
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 Part a) Table of Results
CFL ILB Decision
$ $
PW(disposal = $1/bulb) (13,153) (49,676) CFL
$ $
PW(disposal = $2/bulb) (13,557) (49,676) CFL
$ $
PW(disposal = $3/bulb) (13,961) (49,676) CFL
$ $
PW(disposal = $4/bulb) (14,365) (49,676) CFL
$ $
PW(disposal = $5/bulb) (14,769) (49,676) CFL

Decision Reversal:
Disposal Cost / CFL bulb $ 91.43

Part b) Table of Results

CFL ILB Decision
PW(Electricity = $
$0.04/kWh) $ (7,583) (25,832) CFL
PW(Electricity = $
$0.06/kWh) $ (8,875) (31,793) CFL
PW(Electricity = $ $
$0.08/kWh) (10,166) (37,754) CFL
PW(Electricity = $ $
$0.10/kWh) (11,458) (43,715) CFL
PW(Electricity = $ $
$0.12/kWh) (12,750) (49,676) CFL
PW(Electricity = $ $
$0.14/kWh) (14,041) (55,638) CFL
PW(Electricity = $ $
$0.16/kWh) (15,333) (61,599) CFL

Decision Reversal:
$
PW(Electricity = $0 / kWh) $ (5,000) (13,909) CFL

716
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11-28 continued

Part c) Table of Results Assume Repeatability

CFL ILB Decision

$ $
AW(CFL life = 5 years) (2,947) (10,000) CFL
$ $
AW(CFL life = 6 years) (2,776) (10,000) CFL
$ $
AW(CFL life = 7 years) (2,656) (10,000) CFL
$ $
AW(CFL life = 8 years) (2,567) (10,000) CFL
$ $
AW(CFL life = 9 years) (2,498) (10,000) CFL
$ $
AW(CFL life = 10 years) (2,445) (10,000) CFL

$
AW(CFL life = 1 year) (5,600) $ (2,800) ILB
$
AW(CFL life = 2 years) (2,958) $ (2,800) ILB
$
AW(CFL life = 3 years) (2,082) $ (2,800) CFL

717
© 2012 Pearson Education, Inc., Upper Saddle River, NJ. All rights reserved. This publication is protected by Copyright and written permission should be
obtained from the publisher prior to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by any means, electronic,
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11-29 See P11-29.xls.

$ Hybrid
Difference in Purchase (5,000) mpg 46
Difference in Resale $ 2,000 Gas mpg 25
Miles Driven / year 15,000
Cost of Gas/gallon 4
Study Period 5

Gasoline Savings $ 1,095.65

Incremental Cash Flows Year

0 $ (5,000)
1 $ 1,095.65
2 $ 1,095.65
3 $ 1,095.65
4 $ 1,095.65
5 $ 3,095.65

IRR 12.6%

This spreadsheet was used to compile the following table of results for the posed “what if” questions.

Ownership Resale Cost of

Period IRR Difference IRR Gasoline IRR
3 2.4% $ 1,000 8.4% $ 3.00 5.7%
4 8.7% $ 2,000 12.6% $ 4.00 12.6%
5 12.6% $ 3,000 16.1% $ 5.00 19.2%
6 15.1% $ 4,000 19.2%
7 16.8%

718
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 Solutions to FE Practice Problems

11-30 Existing Bridge:

PWE(12%) = −$1,6000,000 − $20,000(P/A,12%,20) − $70,000[(P/F,12%,5)
+(P/F,12%,10) + (P/F,12%,15)] = −$1,824,435

New Bridge:
PWN(12%) = −X – [$24,000 + (5)($10,000)](P/A,12%,20) +
($0.25)(4000,000)(P/A,12%,20)
= −X + $194,204

Set PWE(12%) = PWN(12%) and solve for X.

−$1,824,435 = −X + $194,204
X = $2,018,639

Select (b)

719
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Education, Inc., Upper Saddle River, NJ 07458.
11-31 X = average number of vehicles per day

(0.03)($117,000)
AW(12%) = 0 = −$117,000/mile(A/P,12%,25) −
mile

⎛ 1,250 − 710accidents ⎞
+ (X vehicles/day)(365 days/yr)($1,200/accident) ⎜ ⎟
⎝ 1,000,000vehicle − miles ⎠
X = 77.91 vehicles/day

Select (a)

720
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obtained from the publisher prior to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by any means, electronic,
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11-32 X * 0.80 = $10,000 (N/P, 12%, 8) + 2,000 + 0.28 * x

0.52X = 10,000 (0.2013) + 2,000

X = 7,718

Select (a)

721
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obtained from the publisher prior to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by any means, electronic,
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Education, Inc., Upper Saddle River, NJ 07458.
11-33 (0.8-0.20)X = 18,000 (0.2013) + 5,000

X = 14,373

Select (b)

722
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obtained from the publisher prior to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by any means, electronic,
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Education, Inc., Upper Saddle River, NJ 07458.
11-34 M/C A = 10,000 (0.2013) + 2000 + 0.28 × 30,000

= $12,413

M/C B = 18000 (0.2013) + 5000 + 0.2 × 30,000 = $14,623.4

from supplier = 0.8 × 30,000

= $24,000

M/C A should be installed

Select (b)

723
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11-35 False

724
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obtained from the publisher prior to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by any means, electronic,
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Education, Inc., Upper Saddle River, NJ 07458.
11-36 False

725
© 2012 Pearson Education, Inc., Upper Saddle River, NJ. All rights reserved. This publication is protected by Copyright and written permission should be
obtained from the publisher prior to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by any means, electronic,
mechanical, photocopying, recording, or likewise. For information regarding permission(s), write to: Rights and Permissions Department, Pearson
Education, Inc., Upper Saddle River, NJ 07458.
11-37 False

726
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obtained from the publisher prior to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by any means, electronic,
mechanical, photocopying, recording, or likewise. For information regarding permission(s), write to: Rights and Permissions Department, Pearson
Education, Inc., Upper Saddle River, NJ 07458.
11-38 True

727
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obtained from the publisher prior to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by any means, electronic,
mechanical, photocopying, recording, or likewise. For information regarding permission(s), write to: Rights and Permissions Department, Pearson
Education, Inc., Upper Saddle River, NJ 07458.
11-39 False

728
© 2012 Pearson Education, Inc., Upper Saddle River, NJ. All rights reserved. This publication is protected by Copyright and written permission should be
obtained from the publisher prior to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by any means, electronic,
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Education, Inc., Upper Saddle River, NJ 07458.
11-40 Equate EUACs for both motors and solve for the unknown cost of electricity:

$2,500(A/P,12%, 10)+ $400 + [90 hp(0.746kW/hp)(500 hrs./yr.)($X/kW-hr.)]/ 0.74

=$3,200(A/P,12%,10)+ $600 + [90 hp(0.746kW/hp)(500 hrs./yr.)($X/kW-hr.)]/0.89.

By solving for $X/kW-hr. we find that X = $0.0424/kW-hr. Therefore, Phillips is preferred over General
Electric when X is greater than or equal $0.0424/kW-hr.and the answer is (d).

Select (d).

729
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