A company must select between two air scrubbers required by the EPA for the life of the facility. Scrubber A has an initial cost of $140,000, costs $15,000 per year to operate, and has a salvage value of $12,000. Scrubber A has a useful life of 8 years. Scrubber B has an initial cost of $95,000, costs $19,000 per year to operate, and has a salvage value of $5,000. Scrubber B has a useful life of 9 years. The MARR for this project is 8%. Based on EUAC, which scrubber should be selected?

Answer:

Scrubber A

Initial Cost = $140,000

Annual operating cost = $15,000

Salvage value = $12,000

Interest rate (i) = 8%

Time period (n) = 8 years

Calculate the Equivalent Uniform Annual Cost -

EUAC = -Initial cost (A/P, i, n) - Annual operating cost + Salvage value (A/F, i, n)

EUAC = -$140,000 (A/P, 8%, 8) - $15,000 + $12,000 (A/F, 8%, 8)

EUAC = (-$140,000 * 0.17401) - $15,000 + ($12,000 * 0.09401)

EUAC = -$24,361.40 - $15,000 + $1,128.12

EUAC = -$38,233.28

The EUAC of scrubber A is -$38,233.28

Scrubber B

Initial Cost = $95,000

Annual operating cost = $19,000

Salvage value = $5,000

Interest rate (i) = 8%

Time period (n) = 9 years

Calculate the Equivalent Uniform Annual Cost -

EUAC = -Initial cost (A/P, i, n) - Annual operating cost + Salvage value (A/F, i, n)

EUAC = -$95,000 (A/P, 8%, 9) - $19,000 + $5,000 (A/F, 8%, 9)

EUAC = (-$95,000 * 0.16008) - $19,000 + ($5,000 * 0.08008)

EUAC = -$15,207.60 - $19,000 + $400.4

EUAC = -$33,807.20

The EUAC of scrubber B is -$33,807.20

The EUAC of scrubber B is numerically higher.

So, Scrubber B should be selected.