A company that manufactures clear PVC pipe is investigating the production options of batch and continuous processing. Estimated cash flows are:



The chief operating officer (COO) has asked you to determine if the batch option would ever have a lower annual worth than the continuous flow sys­tem using an interest rate of 15% per year. The continuous flow process was previously deter­mined to have its lowest cost over a 5-year life cycle, but the batch process can be used from 3 to 10 years. If selecting the batch process is sensitive to its useful life, what is the minimum life that makes it more attractive? Solve (a) by hand, and (b) by spreadsheet.


(a) By hand:

AWcont = -140,000(A/P,15%,5) - 31,000 + 25,000(A/F,15%,5)

= -140,000(0.29832) - 31,000 + 25,000(0.14832)

= $-69,057



The lowest cost for batch will occur when its life is longest, 10 years

At n = 10: AWbatch = -80,000(A/P,15%,10) – 52,000 + 10,000(A/F,15%,10)

= -80,000(0.19925) – 52,000 + 10,000(0.04925)

= $-67,448 (< $-69,057; acceptable)



Try n = 9: AWbatch = -80,000(A/P,15%,9) – 52,000 + 10,000(A/F,15%,9)

= -80,000(0.20957) – 52,000 + 10,000(0.05957)

= $-68,170 (< $-69,057; acceptable)



Try n = 8: AWbatch = -80,000(A/P,15%,8) – 52,000 + 10,000(A/F,15%,8)

= -80,000(0.22285) – 52,000 + 10,000(0.07285)

= $-69,100 (> $-69,057; marginally not acceptable)



The batch system will be less expensive than continuous flow if it lasts at least 8 years



(b) Spreadsheet: An expected life of slightly over 8 years is required to select the batch

process.

Trades & Technology

You might also like to view...

What is the job title of the person who usually submits dealer warranty claims to the manufacturer?

A. Service consultant B. Warranty clerk C. Service manager D. Parts specialist

Trades & Technology

Doppler radar is a continuous-wave form of radar. Which of the following is it used to determine?

A. Speed of moving objects B. Velocity of energy propagation C. Peak power of a radar pulse D. Transmission of microwave energy

Trades & Technology

Which of the following statements regarding toe adjustment is true?

A. do not adjust until camber and caster are known to be correct B. neutralize the suspension before adjusting C. make toe measurements at axle spindle height D. all of the above

Trades & Technology

Wire type THWN copper is run in a raceway from a wall outlet in a building under concrete floor where the conduit is in contact with the earth. The walls are exposed on both sides to free air. If the load requires a minimum wire rating of 75 A, the minimum wire size permitted is ____ AWG.

A. 4 B. 6 C. 8 D. 10

Trades & Technology