ConE 430
Case Study
Brian Hornby
Class ID #40
Prof. Hemati
Fall 2016
Table of Contents
Cover ___________________________________________________1
Table of Contents _________________________________________2
Abstract _________________________________________________3
Background ______________________________________________3
Analysis _________________________________________________4
Conclusion _______________________________________________5
Acknowledgments _________________________________________5
References _______________________________________________6
Appendix ________________________________________________6
Abstract
It is the point of this paper to detail the economic advantages of using diesel powered boat engines over gasoline as the benefits break down to a linear comparison that correlates to a gasoline being 1.53 times more expensive than the diesel. We have been given costs of both configurations and have analyzed short and long term figures. We were not given any details regarding sales or schedule timelines so we did not take any of that into consideration. The Bottom line is that the diesel system is vastly more economical than the gasoline system. The gasoline boats travel faster on average but that is not enough to sway the recommendation.
Background
Harbor Delivery Service (HDS) is a national company that operates short range deliveries in coastal communities around the US. They have multiple locations and each location uses between five and fifteen boats to deliver goods. Each boat travels around 200 nautical miles (kts) per day and are housed in a fueling/service dock setup at night, they run three 6 hour shifts a day seven days a week all year long. At this point each location manager has chosen from local boats to deliver with and this has created maintenance, fuel and brand issues. The purpose of this paper is to analyze the cost differences between diesel and gasoline engines placed in the same boat hull. A final boat design has been chosen and we now need to choose the fuel system. All current boats will be phased out and these new boats will take their place.
50% of the location managers have requested gasoline because of boat speed, 30% have requested diesel and 20% don’t care. The Minimal Attractive Rate of Return (MARR) is set at 18%. Insurance favors diesel and is charging an extra $500 per year per boat in premiums. The speed value of the faster gasoline boat is given a monetary value of $50 per day per boat. The rest of the details can be found in the appendix and will be detailed in the analysis portion of this paper.
Analysis
In order to calculate the annual costs to determine a recommendation we will look at all the costs individually. The Insurance will charge $500 per year less in premiums if we use diesel, this is because of the explosive nature of gasoline compared to diesel, diesel is considered safer to work with. This is not really a selling point because it is such a small amount when compared to other costs. The diesel boats have an average speed of 17.4 kts as opposed to the gasoline speed of 21.1 kts. This is useful for delivery efficiency and is awarded $50 per day per boat which adds up and is something to consider. The efficiency of a diesel engine is superior to a gasoline engine and therefore has a burn rate of 17 gallons per hour (gph) as opposed to the gasoline engine of 26 gph. This is detailed in the spreadsheets in the appendix. Both boats have a fuel capacity of 300 gallons so the diesel will need to fill up less often. The boats will travel on average 200 nautical miles per day and will need to fill up at the company station. This station charges a fee of $15 to fuel at night and $55 to fuel during the day. The gasoline boat will require 468 gallons per day so will be forced to fill up twice for a total of $70 per day in fees, the diesel will require 312 gallons per day so will only require one fill up a day plus an additional Jerry can to fill the last 12 gallons. This will be implemented to save the $55 fee. The gasoline boat will shut down for the 6 hours that it is in port at night but the diesel will idle all the time consuming an extra one gpm for the six hours in port. It is found that the fuel consumption of the gasoline engine is 1.5 times that of the diesel which yields a fuel cost ratio of 1.6 gasoline vs diesel at $3.15/gal and $2.95/gal respectively. Maintenance is higher with a diesel engine hovering close to 2.3 times more costly when factoring in total maintenance. The salvage value of each is set at $48,000 with a life expectancy of four years for the diesel and $38,000 and three years for the gasoline. When calculating the EUAC at 18% MARR for the three and four year life expectancy we find that the diesel engine has an annual cost of $27223.14 and the gasoline of $24585.70. This is slightly in favor of the gasoline engine.
EUAC gasoline
P(A/P, i, n) – S(A/F, i, n) = $76,586(.4599) - $38,000(.2799) = $24,585.70
EUAC diesel
P(A/P, i, n) – S(A/F, i, n) = $97,995(.3717) - $48,000(.1917) = $27,223.14
When calculating the present worth of the invested amount for each boat we found that the difference is not that great with an interest rate of 18%. This makes the diesel option seem more attractive if the 18% is attainable.
Present Worth of gasoline
P = F(P/F, I, n) = $76,586(.6086) = $46,600
Present Worth of diesel
P = F(P/F, I, n) = $97,995(.5158) = $50,546
Conclusion
After researching all of the data it is recommended that the diesel boats should be purchased as the costs of the gasoline boats are consistently 1.5 times that of the diesel from one year to 200+ years. The spreadsheets clearly show this and a few of the screenshots have been placed in the appendix.
Acknowledgements
Professor Hemati, San Diego State University
References
Newnan D, 2014, Engineering Economic Analysis, Oxford University Press, New York
Appendix
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