Kleen Corp., a privately owned and operated single-stream recycling facility, has annual con­tracts with several cities in the Tri-County Metro­politan Area. Kleen Corp. wants to add a new set of sensors to its existing machinery that will sepa­rate plastics and metals from paper and glass mate­rials earlier in the separation process. Two versions of the sensor equipment are available from the Green Corporation. Model 400 has a first cost of $700,000, while Model 1000 costs $1 million. Both have an expected 10% salvage value after their respective useful lives of 6 and 3 years. Assume you work for Kleen Corp. as a project engineer. You have made first-cut estimates of the annual savings (with no annual increases for effi­ciency) and expenses (AOC with no annual de­creases or

Question

increases) for both models.



(a) Perform an ROR analysis using MARR = 5% per year to recommend one of the two mod­els to your president. You know that your president likes dollar-per-year figures, and will want to see a plot of the annual worth amounts for different rate of return values when you visit with her.

(b) Before you finalize your recommendation, ensure that there is no ranking inconsis­tency present with these two alternatives. If there is not, no problem. If there is, be pre­pared to provide the logic of your recom­mendation.

Answer 1

(a) The i* values show that both alternatives are justified for MARR = 5%. Incremental ROR analysis results in ?i* = 5.85 %, which exceeds MARR = 5%. Select Model 1000. Develop plot of AW vs. ?i values to show ?i* = 5.85% per year.



(b) Ranking inconsistency is present. Based on AW analysis over 6 years, select Model 400

(at the higher i* of 7.61%), which is different than incremental analysis result.