Purchase Solution

Annual Equivalent Cost; Oven Case Study

Not what you're looking for?

Ask Custom Question

Synta Manufacturing Company is considering purchase of new oven to dry its painted optical tube assemblies.

Alternative 1: Conventional oven will cost $100,000 and can be expected to last 5 years, with a salvage value of $10,000. Operating costs will be $24,000 per year. •

Alternative 2: Convection oven will cost $140,000, should last 5 years, and will have a salvage value of $12,000. The operating costs will be $12,000 per year.

Assume the services provided by the ovens are identical. Assume an interest rate of 10%
a) Compare the annual equivalent costs of the 2 alternatives.
b) Make a recommendation for selection.

Purchase this Solution
Solution Summary

This solution provides detailed step-wise calculations to an engineering economics problem.

Solution Preview

Annual equivalent cost or annual worth (AW) is the annual cost of owning an asset over its
entire life. It is often used by firms for capital budgeting decisions.

This is how you calculate AW:

Alternative 1
Capital Recovery (CR) = - $100,000 (A/P, 10%, 5) + $10,000 (A/F, 10%, 5)
where A = ...

Solution provided by:
Tania Dey, PhD
Education
  • BSc (Hons),
  • MSc,
  • PhD,
Recent Feedback
  • "Thankyou for the feedback. I have a few question though; With the first statistic about cost below... “According to Sigma-Aldrich catalog, cost of 1L octane is AUD $ 392.00, whereas the cost of 1L ethanol is AUD $196.00. Moreover, if ethanol is obtained from sugar industry as a by-product, it may cost even less. Source of oxygen is ambient atmosphere, so it costs nothing. So ethanol is much cheaper than petrol, in fact it is half-priced: AUD $ (392-196) = $ 196.” I didn't think it made sense because the cost of petrol per litre is normally a dollar something or even less than a dollar not a couple of hundred of dollars. For example, a statistic that I found in america was: "U.S. ethanol production costs are about $1.20 per gallon of ethanol, or $1.82 per gallon on a gasoline-equivalent basis." However, I was wondering whether you could find an Australian statistic. Also, you mentioned that H20 is not a greenhouse gas. However, in the combustion equations it is actually carbon dioxide and water vapour which are produced and they are both greenhouse gases. Finally, how do I calculate the energy efficiency of ethanol and petrol? "
  • "Thank you!"
  • "Didnt really answer my questions but gave me a start at least."
  • "Once again this is tremendous help I can't thank you enough for not only working the problem but explaining in detail how and why!! KR"
  • "Awesome thank you so much for the help!!!"
Purchase this Solution
Free BrainMass Quizzes
Know Your Linear Equations

Each question is a choice-summary multiple choice question that will present you with a linear equation and then make 4 statements about that equation. You must determine which of the 4 statements are true (if any) in regards to the equation.

Exponential Expressions

In this quiz, you will have a chance to practice basic terminology of exponential expressions and how to evaluate them.

Graphs and Functions

This quiz helps you easily identify a function and test your understanding of ranges, domains , function inverses and transformations.

Geometry - Real Life Application Problems

Understanding of how geometry applies to in real-world contexts

Multiplying Complex Numbers

This is a short quiz to check your understanding of multiplication of complex numbers in rectangular form.

View More Free Quizzes
Related BrainMass Solutions

  • 6 Finance Problems: Calculate WACC, NPV, cash flow, EAA, IRR, abandonment value

    If the company's cost of capital is 10 percent and both "projects" can be repeated indefinitely, then what is the equivalent annual annuity (EAA) of both projects? Mom's Cookies Inc. is considering the purchase of a new cookie oven.

  • Operation Management

    Total rooms rented per year=365*50=18250 Susan's total costs if they do it themselves=61000+12.50*18250=$289125 Total costs involved if cleaning services are outsourced=25000+18.50*18250=$362625 Annual Cost in case of outsourcing is higher.

  • Kristen's Cookie Company

    248877 Case Study: Kristen's Cookie Company Case Study Analysis Based on the enclosed case study of Read the Kristen's Cookie Company. Prepare a 1,050- to 1,400-word response in which you: a. Answer the questions at the end of the case. b.

  • Incremental cash flows, depreciation, net present value

    The original cost of the old oven was $30,000.; it is now 5 years old and it has a current market value of $13,333.33.

  • Valley Pizza: Cost Analysis of Possible Machine Replacement

    The cost of the old oven is a sunk cost and is not relevant. The $3,000 book value does not represent any cash flow to the owner. The owner should look at incremental costs of the decision. 3.

  • Sunk Costs and Relevant Costs

    Selected information about the two ovens is given below: EXISTING NEW TURBO OVEN Original Cost $60,000 $50,000 Accumulated depreciation $5,000 Current salvage value $40,000 Remaining life 5 years 5 years Annual operating expense $10,000 $7,500

  • Replacement Project

    International Cookies Inc. is considering the purchase of a new cookie oven. The original cost of the old oven was $30,000; it is now 5 years old, and it has a current market value of $13,333.33.

  • Europa Airlines

    231383 Europa Airlines Please view the attachment for case study about Europa Airlines. In order to resolve this issue, the first step will be to correct or rectify the problem in all the ovens with complaints.

  • the life of the project

    When we are talking about the annual worth of an alternative, we are talking about the equivalent annual cost/benefit. This is done to compare the projects which have unequal life.

View More Related Solutions