Question 6.EE: You have been requested to offer a recommendation of one of ...

Engineering Economy [EXP-20136]

You have been requested to offer a recommendation of one of the mutually exclusive industrial sanitation control systems that follow. If the MARR is 15% per year, which system would you select? Use the IRR method. (6.5)

	Gravity-fed	Vacuum-led
Capital investment	$24,500	$37,900
Annual receipts less expenses	8,000	8,000
Life (in years)	5	10
IRR	18.9%	16.5%

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Rank order: Gravity-fed (G), Vacuum-led (V)
The IRR of the gravity-fed exceeds 15%, so it is acceptable. We must next consider the incremental difference, Δ (V – G) as follows: 0 = −$13,400 + $24,500(P/F, $i^'$ , 5). The IRR on this increment is 12.8%, so we reject vacuum-led and stick with gravity-fed as our choice.

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