Finance

Accurate airflow measurement requires straight unobstructed pipe for a minimum of 10 diameters upstream and 5 diameters downstream of the measuring device. In one particular application, physical constraints compromised the pipe layout, so the engineer was considering installing the airflow probes in an elbow, knowing that flow measurement would be less accurate but good enough for process control. This was plan A, which would be acceptable for only 2 years, after which a more accurate flow measurement system with the same costs as plan A will be available. This plan would have a first cost of $25,000 with annual maintenance estimated at $4000. Plan B involved installation of a recently designed submersible airflow probe. The stainless steel probe could be installed in a drop pipe with the transmitter located in a waterproof enclosure on the handrail. The cost of this system would be $88,000, but because it is accurate, it would not have to be replaced for at least 6 years. Its maintenance cost is estimated to be $1400 per year. Neither system will have a salvage value.

At an interest rate of 12% per year, which one should be selected on the basis of an annual worth comparison?

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