Problem 1

(a) I am evaluating two pumps for my project. Pump A has a cost of $18,000 and has a service life of 2 years. Pump B has a cost of $25,000 and an estimated service life of 3 years. If the cost of capital is 13%, determine the annual capital charge (or annualized capital cost) of both pumps. Which pump is more economical?

(b) A design engineer is evaluating two devices for his project. Device A has a purchase cost of $25,000 and has a service life of 5 years. Device B has a purchase cost of $40,000 and an estimated service life of 10 years. Estimate the interest rate i (cost of capital) for both devices to have the same regular annual payment (A).