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

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

Q 1c) Calculate the annual worth of the Lloyd protectors

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

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

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?

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

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