EGG 307 HW 7 - EGG 307: Engineering Economics Homework No....

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EGG 307: Engineering Economics Homework No. 7 Solution Spring 2009 Problem Two mutually exclusive water purification systems are being considered for installation in a village in a developing country. The systems have estimated cash flows summarized in the table below. System 1 System 2 Incremental Cash flows Initial capital investment $100,000 $155,000 $55,000 Annual revenues $43,000 $70,000 $27,000 Annual expenses $22,000 $40,000 $18,000 Service life (years) 10 10 10 Market value at end of service $10,000 $0 -$10,000 IRR 17.0% 15.1% 8.3% PW(Annual Revenues) $288,.534 $469,706 $181,172 PW(Annual Costs) $147,622 $268,403 $120,781 PW(Initial) – PW(Salvage value) $95,368 $155,000 $59,632 B/C ratio (Conventional) 1.19 1.11 1.004 Discounted payback period (years) 6.2 6.9 (a) The individual IRR for the systems are both above the MARR of 8%, which means they are both good candidates for implementation.
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This note was uploaded on 07/13/2009 for the course EGG a taught by Professor Dr.kaseko during the Spring '09 term at University of Nevada, Las Vegas.

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