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Unformatted text preview: 1 ME 416 Computer Assisted Design of Thermal Systems Engineering Economics Examples Example: Annual Worth Analysis A machine shop has decided that it needs to purchase a new lathe. It is considering two alternatives with cost information shown below: Lathe A Lathe B Capital Cost $100,000 $150,000 Expected Life 5 yrs 10 yrs Salvage Value $20,000 0 Annual receipts $50,000 $70,000 Annual disbursements $22,000 $43,000 Interest Rate 12.5% 12.5% Using an annual worth analysis propose a decision to the shop. Solution: A good tool for these types of problems is the economic timeline. On this timeline we show the cash flows in and out of the problem. For example, for Lathe A we might have 0 1 2 3 4 5 P cap A rec A rec A rec A rec A rec A disp A disp A disp A disp A disp F salv Then our annual worth can be calculated from (AW) A = P cap ⋅ (A/P,0.125,5) + A rec – A disp + F salv ⋅ (A/F.0.125,5) ME 416 CAD of Thermal Systems 2 Calculating our interest functions ( ) 2809 ....
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This note was uploaded on 07/25/2008 for the course ME 416 taught by Professor Somerton during the Fall '07 term at Michigan State University.
 Fall '07
 SOMERTON

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