Background and Information a Also, the repair savings for the last 3 years were USD35,000, USD32,000, and USD28,000, as best as your brother can determine. He believes savings will decrease by USD2000 per year hereafter. Finally, these 3-year-old protectors are worth nothing on the market now, so the salvage in 7 years is zero, not USD3000. Your brother owns workshop in New York. He performed an economic analysis 3 years ago when he decided to purchase protective equipment for all his important pieces of equipment in the workshop. The estimates he used and the annual worth analysis at MARR = 15% are summarized below. Two different manufacturers' systems were compared. Table 1 Sys. A Sys. B Cost & installation (USD) -26,000 -36,000 Annual maintenance -800 -300 cost (USD per year) Salvage value (USD) 2.000 3,000 Equipment repair savings (USD) 25,000 35,000 Useful life (years) 10 The results in Table 2 below helped your brother make his decision. System B was the clear choice due to its substantially larger AW value. It was finally installed. Case Study Exercises 1.Plot a graph of the newly estimated maintenance costs and repair savings projections, assuming the protectors last for 7 more years. 2. With these new estimates, what is the recalculated AW for System B? Use the old first cost and maintenance cost estimates for the first 3 years. If these estimates had been made 3 years ago, would System B still have been the economic choice? 6 3. How has the capital recovery amount changed for System B with these new estimates? When he made a quick review this last year (year 3 of operation), it was obvious to him that the maintenance costs and repair savings have not followed (and will not follow the estimates made 3 years ago. In fact, the maintenance contract cost (which includes quarterly inspection) is going from USD300 to USD1200 per year next year and will then increase 10% per year for the next 10 years. Table 2 Year 0 1 2 3 System A Investment & Annual Salvage Maintenance -26000 0 800 800 800 800 800 2000 800 Repair Savings 0 25000 25000 25000 25000 25000 25000 4 System B Investment & Annual Salvage Maintenance -36000 0 -300 -300 -300 -300 -300 -300 -300 -300 -300 3000 -300 -7025 -300 5 Repair Savings 0 35000 35000 35000 35000 35000 35000 35000 35000 35000 35000 35000 27675 6 7 8 9 10 AW Element Total AW -6642 -800 25000 17558