Financial planning

An industrial engineer is considering two robots for purchase by a fiber-optic manufacturing company. Robot X will have a first cost of $85,000, an annual maintenance and operation (M&O) cost of $30,000, and a $40,000 salvage value. Robot Y will have a first cost of $97,000, an annual M&O cost of $27,000, and a $48,000 salvage value.

Which should be selected on the basis of an annual worth comparison at an interest rate of 12% per year? Use a 3-year study period.

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A chemical engineer is considering two styles of pipes for moving distillate from a refinery to the tank farm. A small pipeline will cost less to purchase (including valves and other appurtenances) but will have a high head loss and, therefore, a higher pumping cost. The small pipeline will cost $l.7 million installed and will have an operating cost of $12,000 per month. A larger-diameter pipeline will cost $2.1 million installed, but its operating cost will be only $8000 per month.

Which pipe size is more economical at an interest rate of 1 % per month on the basis of an annual worth analysis? Assume the salvage value is 10% of the first cost for each pipeline at the end of the lO-year project period.

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