Question 5.GG: A remotely situated fuel cell has an installed cost of $2,00...

Engineering Economy [EXP-20136]

A remotely situated fuel cell has an installed cost of $2,000 and will reduce existing surveillance expenses by $350 per year for eight years. The border security agency’s MARR is 10% per year.

a. What is the minimum salvage (market) value after eight years that makes the fuel cell worth purchasing?

b. What is the fuel cell’s IRR if the salvage value is negligible?

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(a) Set AW(8%) = 0 and solve for S, the salvage value.
0 = − $2,000(A/P, 10%, 8) + $350 + S (A/F, 10%, 8); S = $283.75

(b) Set PW( $\acute{i}$ ) = 0 (or AW or FW) and solve for $\acute{i}$ .

0 = −$2,000 + $350(P/A, $\acute{i}$ , 8); $\acute{i}$ = 8.15% per year

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