W12_MFO_Analyzing Cost-Only Alternative Using Equivalent Worth For Selecting Fire Water Pump

  1. Problem Definition.

Same case like in W11 blog posting, we have plan to install electric fire water pump for the gas plant and we have received a complete offer with the specifications of the three brands of pumps. In this blog, the author wants to analyze cost-only alternatives of the three brands of pumps using equivalent worth. Which pump should be preferred base on equivalent worth?

  1. Identify the Feasible Alternative.

The following table contains data of three brand of pumps that will be selected.

Table 1. The pumps data

This pumps will be used for 10 years and the company has a MARR of 14%

  1. Development of the Outcome for Alternative.

Using table 1 data, we will calculate the PW (Present Worth), AW (Annual Worth), and FW (Future Worth). The result as seen as table below.

Table 2. The result of Equivalent Worth Values

  1. Selection of Criteria.

The pump that will minimize the equivalent worth of total costs over the ten-year analysis period will be used as selection of criteria.

  1. Analysis and Comparison of the Alternative.

The comparison of three brand pump using the PW, AW, and FW methods to minimize total cost as seen as table 3 below.

Table 3. The comparison of the pumps

From the table 3, alternative brand C minimizes all three equivalent-worth values of total costs and is the preferred alternative. The preference ranking (Brand C > Brand B > Brand A) resulting from the analysis is the same for all three methods.

  1. Selection of the Preferred Alternative.

Base from above calculation, brand C minimizes all three equivalent-worth values of total costs and is the preferred alternative for the gas plant.

  1. Performance Monitoring and the Post Evaluation of Result.

Monitoring should be conducted during execution of the project to ensure that all requirements are met.

References:

  1. Sullivan, W.G., Wicks, E. M., Koelling, C. P. (2014). Engineering Economy. Pearson. Sixteenth Edition.
  2. Electric fire water pump specification & quotation Brand A
  3. Electric fire water pump specification & quotation Brand B
  4. Electric fire water pump specification & quotation Brand C
  5. What is the formula for calculating net present value (NPV) in excel. Retrieved from https://www.investopedia.com/ask/answers/021115/what-formula-calculating-net-present-value-npv-excel.asp
  6. How to calculate net present value (Npv) in excel. Retrieved from https://www.youtube.com/watch?v=hG68UMupJzs

 

 

 

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