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Case Study: Plotter

Construction Engineering 430

Arlyn Abanes

Class Number: 1

Summer 2016

Case Study

Your company plotter has been having issues with receiving files to print. The company manager suggested on buying a new plotter because the cost of maintenance is adding up to $1500 a year.

You are assigned to look for two new possible printers and figure out which is the best solution for this problem.

Plotter’s Cost

Plotter 1 Plotter 2
Cost of the Plotter $4496 $4900
Interest Rate 9% 9%
Life Span 9 years 10 years
Salvage Value $450 $490
Annual Maintenance Saving $1500 $1500

Salvage Value is the 10% of the cost of each plotter,

Plotter 1 Calculation

Calculate Equivalent Uniform Annual Benefit.

Find the Equivalent Uniform Annual Cost of plotter 1.

Plotter 2 Calculation

Calculate Equivalent Uniform Annual Benefit.

Find the Equivalent Uniform Annual Cost of plotter 2.

Benefit-Cost Ratio

Plotter 2 – Plotter 1

Recommended Solution

Through using different Engineering Economy techniques, Equality Uniform Annual (EUA) method and Benefit-Cost Ratio, to narrow down and calculate which is the best alternative solution.

The two alternative choices had close to similar data information. The only differences were the prices and the life span of the product. However, by using benefit-cost ratio method it was possible to narrow down the best possible choice for the company.

According to the criterion in table 9-1, due to the result of the benefit-cost method being less than 1, which is -0.172, the correct decision for the company is the cheaper version which is plotter 1.

Annual Depreciation and Book Value

Year (t) MACRS (rt) Cost Basis dt Cumulative BVt
1 10.00% $4,496.00 $449.60 $449.60 $4,046.40
2 18.00% $4,496.00 $809.28 $1,258.88 $3,237.12
3 14.40% $4,496.00 $647.42 $1,906.30 $2,589.70
4 11.52% $4,496.00 $517.94 $2,424.24 $2,071.76
5 9.22% $4,496.00 $414.53 $2,838.77 $1,657.23
6 7.37% $4,496.00 $331.36 $3,170.13 $1,325.87
7 6.55% $4,496.00 $294.49 $3,464.62 $1,031.38
8 6.55% $4,496.00 $294.49 $3,759.11 $736.89
9 6.56% $4,496.00 $294.94 $4,054.04 $441.96

Using table 11-3 for the MACRS values

Compare Plotter 1 with old printer

The annual depreciation and book value calculation was an extra comparison of the actual salvage value.

As shown, if the actual salvage value and the savings were added together the total of the benefit from buying the new printer would be $1941.96.

If the old printer was kept for 9 years, the summation of lost will be $13,500.

Thus, buying a new plotter will be better due to the money saved from maintenance and the possible salvage value.