homework 5 engineer economic analys etm 310

Homework 5

Total Points: 5

Due date: July 20, 2018

  • (2.5 points) Emerson Power is evaluating the construction of a new electric generation facility. The two choices are a coal-burning plant (CB) and a gaseous diffusion (GD) plant. The CB plant will cost $350 per megawatt to construct, and the GD plant will cost $450 per megawatt. Owing to uncertainties concerning fuel availability and the impact of future regulations related to air and water quality, the useful life of each plant is unknown, but the following probability estimates have been made.
  • (2.5 points) A new machine will cost $35,000. The machine is expected to last 4 years and has no salvage value. The following is known about the annual savings due to the new machine.

Useful life (years)

Probability

CB Plant

GD Plant

10

0.05

0.10

20

0.25

0.50

30

0.50

0.30

40

0.20

0.10

  • Determine the expected life of each plant.
  • Based on the ratio of construction cost per megawatt to expected life, which plant would you recommend that Con Ed build?

p=.30

p=.40

p=.30

Annual savings

$7,000

$8,500

$9,500

If the interest rate is 7%, determine the NPW of the machine.