ass09_due102708

ass09_due102708 - ISE460 Fall 2008 Session 17 Assignment 09...

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ISE460 Fall 2008 Session 17 10/19/08 Assignment 09 Due 10/27/08 midnight. Solution available 10/28/08 A.M. No.1 (1 ½ points) To decrease the costs of operating a lock in a large river, a new system of operation is proposed. The system will cost $650,000 to design and build. It is estimated that it will have to be reworked every 10 years at a cost of $100,000. In addition, an expenditure of $50,000 will have to be made at the end of the fifth year for a new type of gear that will not be available until then. Annual operating costs are expected to be $30,000 for the first 15 years and $35,000 a year thereafter. Compute the capitalized cost of perpetual service at i = 8%. No.2 (1 ½ points) A plant engineer is considering two types of solar water heating system: Model A Model B Initial cost $7,000 $10,000 Annual savings $700 $1,000 Annual maintenance $100 $50 Expected life 20 years 20 years Salvage value $400 $500 The firm’s MARR is 12%. On the basis of the IRR criterion, which system is the better choice?
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