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Question 6.AA: Two insulation thickness alternatives have been proposed for...

Two insulation thickness alternatives have been proposed for a process steam line subject to severe weather conditions. One alternative must be selected. Estimated savings in heat loss and installation cost are given below.

Thickness

 Installed Cost Annual Savings

Life

2 cm

 $20,000 $5,000 4 years
5 cm $40,000 $7,500

6 years

Which  thickness  would  you  recommend  for a  MARR  = 15%  per  year and  negligible  market (salvage) values? The study period is 12 years.

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AW_{2 cm}(15%) =  −$20,000 (A/P, 15%, 4) + $5,000= −$2,006 per year
AW_{5 cm}(15%) =  −$40,000 (A/P, 15%, 6) + $7,500= −$3,068 per year

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