Birmingham Steel, Inc. is considering whether to buy conventional 25-HR 230-V, 60-Hz, 1800-rpm induction motors in its

Question:

Birmingham Steel, Inc. is considering whether to buy conventional 25-HR 230-V, 60-Hz, 1800-rpm induction motors in its plant or modern premium efficiency (PE) motors with the same specifications. Both types of motor have a power output of 18.650 kW per motor (25HP X 0.746 kW/HP). Conventional motors have a published efficiency of 89.5%, while the PE motors are 93% efficient. The initial cost of the conventional motors is $14,000, whereas the initial cost of the proposed PE motors is $ 16,600. The motors are operated 12 hours per day, 5 days per week, 52 weeks per year, with a local utility cost of $0.08 per kilowatt-hour (kWh). The motors are to be operated at a 75% load, and the lifecycle of both the conventional and PE motors is 20 years with no appreciable .
(a) At an interest rate of 12%, what are the savings per kWh achieved by switching from the conventional motors to the PE motors?
(b) At what operating hours are the two motors equally economical?
Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...