Example

Clean Car Corporation (CCC), a car wash business in Vienna, Virginia, bought an automated car washing system for $500,000. The cost of operation of this system (labor, material, overhead, administration, etc.) is $100,000 per year increasing by $5,000 each year. The income from the operation of this system is $250,000 per year decreasing due to loss of productivity by 10% per year. The resale value of this system at the end of years 1 to 10 is $350,000, $250,000, $200,000, $170,000, and remains at $170,000 for the rest of the 10

years. If CCC has an 8% MARR, what is the optimum economical life of this system? Do not consider depreciation and tax.

Solution:

Step 1:

We start by calculating the EUAW if CCC keeps the system for only one year. Net income = 250,000-100,000 = 150,000. The cash flow for this situation is

Step 2:

EUAC of initial cost = - SOOOOO (A/P, S.I) = - S40000 EUAB of Operation = 150000 EUAB of reiale = 350000

EUAW for a Qjtt-vgAr life — 40000

Step 1 repeat

Step 2 repeat

EUAC Of initial cost = - 500000 (A/P, %,!) = - 2&M00

EUAB of operation - [15Q0Q0 (P/F, 8,1) + (250000 * 0.9 - 105000){P/F, $. 2)] (A/P, 8, 2) -

We can of course continue doing this for 3, 4, 5 year life as we did for Example 14.1, and obtain the economic life. An easier way is to use the already available spreadsheet program EL. The solution is shown below.

Project Management Made Easy

Project Management Made Easy

What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.

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