PRACTICE - ANNUAL CASH FLOW

Example: Three alternatives are being considered for improving an

operation on the assembly line along with the “do nothing” alternative.
Equipment costs vary, as do the annual benefits of each in comparison to
the present situation. Each of plans A, B, and C has a 10 year life and a
scrap value equal to 10% of its original cost. If interest is 8%, which plan, if
any, should be adopted?

Plan A ($) Plan B ($) Plan C ($)

Installed cost of equipment 15000 25000 33000
Material and labor savings / year 14000 9000 14000
Annual operating expenses 8000 6000 6000
End of useful life scrap value 1500 2500 3300
1
 PRACTICE - ANNUAL CASH FLOW
Plan A ($) Plan B ($) Plan C ($)
Installed cost of equipment 15000 25000 33000
Material and labor savings / year 14000 9000 14000
Annual operating expenses 8000 6000 6000
End of useful life scrap value 1500 2500 3300
Plan A Plan B Plan C
EUAB (Material/ labor) + 14000+ 1500 9000+2500(0. 14000+3300(0.06
Scrap Value (A/F, 8%,10) (0.0690)=14104 0690)= 9172 90) = 14228
EUAC (Installed cost 15000(0.1490)+8000 3725+6000 = 4917+6000 =
(A/P,8%,10) + Annual = 10235 9725 10917
Operating Expenses)
EUAW=EUAB-EUAC 3869 (Best Option) -553 3311 2