Purchasing a new industrial crane: decision making using engineering economics



Case Study:

A manufacturing company is working on a feasibility study of purchasing of a  new overhead crane for the new projects, the price is $48,000 with $5,000 residual value after 4 years. The added benefit to the production by the new crane is $15000 per year. It must be added that the maintenance cost is $3,500 annually. If MARR for this company is 20%, do you recommend purchasing this crane?

Solution:

Let's start with our cash flow diagram:




Cash Flow Diagram 
MARR = 20
# using new present Value approach (NPW): - net present costs(NPC) + net present benefits(NPB)
NPW = -48000 - p_a(a = 3500, i = MARR, n = 4) + p_a(a = 15000, i = MARR ,  n = 4) + p_f(5000, i = MARR , n = 4)
NPW = $-15,819

Conclusion:
According to NPW < 0 the project does not have financial feasibility 

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