Explore BrainMass
Share

Explore BrainMass

    Annual Equivalent Cost; Oven Case Study

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    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.

    © BrainMass Inc. brainmass.com October 10, 2019, 7:40 am ad1c9bdddf
    https://brainmass.com/math/basic-algebra/annual-equivalent-cost-oven-case-study-590441

    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 Summary

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

    $2.19