ISE2014_Class15

ISE2014_Class15 - Class 15 Equal Lives Comparisons ISE 2014...

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Click to edit Master subtitle style Class 15 – Equal Lives Comparisons ISE 2014 Fall 2010
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Your Methods PW Method FW Method AW Method IRR Method
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Review So last class we introduced comparing multiple alternatives We have two types of decision Investment Problems Cost Problems We have two types of timeframe Equal Useful Lives
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Basic Strategy 1. Identify the type of decision 2. Identify the type of timeframe 3. Select an appropriate method 4. Apply method to each alternative Select best alternative
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Today’s Class We’re going to practice a couple more basic problems We’re going to see why IRR method by itself can’t be used to compare projects We’re going to introduce a new method called Incremental Analysis
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Let’s Jump Right In You’re the manager of a small factory, and Virginia just changed its CO2 emission laws In order to stay in compliance you’re going to have to purchase and install some new equipment You’ve done some research and come up
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Option A Equipment A is the cheapest of the options, costing only $20,000. However it has a relatively high maintenance cost of $12,000 per year to maintain. Additionally it has an installation cost of $5,000 in the
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Option B Equipment B has a much higher price tag of $60,000. However, the equipment is very reliable and only costs $5,000 per year to maintain. It also costs $8,000 to install in the first year, slightly more than
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Option C Machine C has a relatively low price tag of $25,000, and a relatively low maintenance
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This note was uploaded on 02/28/2011 for the course ISE 2014 at Virginia Tech.

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ISE2014_Class15 - Class 15 Equal Lives Comparisons ISE 2014...

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