Case Study (80 points)

In order to get full-credit you must show all of your workings including formulas, factor values used, etc.

The case study covers material from Module 4 (i.e. Annual worth analysis). In order to do well on the case study you should go through Module 4 including the solutions to HW4 and Exam 4.

Case Study: THE CHANGING SCENE OF AN ANNUAL WORTH ANALYSIS

Harry, owner of an automobile battery distributorship has decided to place surge protectors in-line for all his major pieces of testing equipment. Two different manufacturers protectors need to be compared using a MARR of 15%.

Scenario 1: PowrUp and Lloyds have submitted the following economic information (See table below)

	PowrUp	Lloyd's
Cost and installation, $	-26,000	-36,000
Annual maintenance cost, $ per year	-800	-300
Salvage value, $	2,000	3,000
Annual repair savings, $ per year	25,000	35,000
Useful life, years	6	10

Q 1a) Calculate the annual worth of the PowrUp protectors (10 points)

Q 1b) What is the capital recovery amount for the PowrUp protectors? (3 points)

Q 1c) Calculate the annual worth of the Lloyd protectors (10 points)

Q 1d) What is the capital recovery amount for the Lloyds protectors? (3 points)

Q 1e) Which manufacturers protectors should be selected by Harry using annual worth analysis (4 points)

Scenario 2: Lloyds have recently revised their economic estimates which are shown in the table below.

Lloyd's (new estimates)
	Initial investment	Upgrade cost	Salvage value	Annual maint.	Repair savings
Year
0	-$36,000
1				-$300	$35,000
2				-$300	$32,000
3				-$300	$28,000
4				-$1,200	$26,000
5				-$1,320	$24,000
6		-$9,000		-$1,452	$22,000
7				-$1,597	$20,000
8				-$1,757	$18,000
9				-$1,933	$16,000
10			$1,000	-$2,126	$14,000

Using these new estimates, answer the following questions:

Q 2a) What is the recalculated AW for the Lloyds protectors? (36 points)

Q 2b) What is the recalculated capital recovery amount for the Lloyds protectors? (10 points)

Q 2c) Which manufacturers protectors should now be selected by Harry using annual worth analysis (4 points)