You have to use three methods when applicable: spreadsheet solutions, manual and Interest tables Lloyd's CASE STUDY 1 THE CHANGING SCENE OF AN ANNUAL WORTH ANALYSIS Background and Information Harry, owner of an automobile battery distributorship in Atlanta, Georgia, performed an economic analysis 3 years ago when he decided to place surge protectors in-line for all his major pieces of testing equipment. The estimates used and the annual worth analysis at MARR = 15% are summarized below. Two different manufacturers" protectors were compared. Powr Up Cost and installation, - 26.000 -35,000 Annual maintenance cost -300 -300 $ per year Salvage values 2.000 3,000 Equipment repair savings 25.000 35,000 Useful life years 6 10 The spreadsheet in Figure 6-9 is the one Harry used to make the decision. Lloyd's was the clear choice due to its substantially larger AW value. The Lloyd's protectors were installed. During a quick review this last year (year 3 of operation, it was obvious that the maintenance costs and repair savings have not followed (and will not follow) the estimates made 3 years ago. In fact, the maintenance contract cost (which includes quarterly inspection) is going from $300 to $1200 per year next year and will then increase 10% per year for the next 10 years. Also, the repair savings for the last 3 years were $35.000, $32,000, and $28,000, as best as Harry can determine. He believes savings will decrease by S2000 per year hereafter. Finally, these 3-year-old protectors are worth nothing on the market now, so the salvage in 7 years is zero, not $3000. Case Study Exercises 1. Plot a graph of the newly estimated maintenance costs and repair savings projections, assuming the protectors last for 7 more years. 2. With these new estimates, what is the recalculated AW for the Lloyd's protectors? Use the old first cost and maintenance cost estimates for the first 3 years. If these estimates had been made 3 years ago, would Lloyd's still have been the economic choice? 3. How has the capital recovery amount changed for the Lloyd's protectors with these new estimates? 1 MARR 15% Lloyd's Insert Anul and shege maintenance 0 -300 0 -300 0 -300 1 -400 3 Powrup 4 rent Annual Ruper 5 Yar and salvage mannen sarang 26,000 o ? 7 O 25.000 25,000 3 25,000 10 0 -800 25.000 11 5 0 25,000 12 6 2.000 -800 1 7 14 8 15 9 16 10 17 AW lament 6,642 -800 25,000 Total W 17,550 gure 6-9 Asal worth analysis of surge protectorales, case study Rear saving 35.000 35,000 30,000 38.000 35.000 35.000 . 25.000 -300 -300 O 0 0 0 0 3.000 -7005 -300 -300 -300 35,000 35,000 35.000 $ 27,675