Equivalent Annual Cost Example 2 - Engineering Economics Lightboard

[@sugatooth]

Thanks for these videos, you've explained this concept much more clearly than my PE prep materials!

[@EngineeringEconomicsGuy]

Glad it was helpful!

[@kripaamgai4159]

Best way to explain 😍 loved the way you teach Student from NEPAL

[@EngineeringEconomicsGuy]

Thank you! I'm happy to help you learn!

[@ibnuahmedbare1201]

Hello . Thanks for explaining this concept. You made it easier than I actually thought. It all became a punch of AW analysis other than the decision making strategy. Thanks again. I have a quick question, For the EAC O&M why don't we use arithmetic gradient calculation instead. taking G=50K A=340K+50K(G/A, MARR, 3) A=386,828 . that will give us a constant Annual value for the Costs, won't it? OR is it because am setting N=5..... am kinda stretching it more than it should have been when I do it for every year? I actually tried that when I paused the video first and ended up different values but don't know how. Should we always use the format in the video without G or g? please clarify THANKS IN BOLD! ------

[@EngineeringEconomicsGuy]

You can absolutely use an A/G compound interest factor to calculate the EAC-O&M. You could do this for the 2 year and/or the 3 years-of-ownership scenarios. I used the P/F twice, then used the A/P factor to arrive at, what should be the same answer you would get with an A/G + 340k. I suspect you might be having a problem with the bigger picture, i.e. - please make sure you understand that the columns labeled EAC in the table represent different "Scenarios of ownership". Meaning, the row labelled "2" is a "what if" scenario of 2 years of ownership. Row "3" is a scenario of 3 years of ownership. If you're ok with this concept then the rest of the table is just a time value of money and cash flow exercise. Hope this helps.

[@ibnuahmedbare1201]

Thank you sir!!!

[@maximeabdulkarim2710]

Hello, why the O&M Cost of 340K didn't start at year 0?

[@maximeabdulkarim2710]

The problem states " Operating and maintenance costs are expected to be $340,000 this year". I understood that this year refers to year 0 since it was also said that "The market value now is $3,300,000", and you entered the value of 3.3M at year 0.

[@EngineeringEconomicsGuy]

The trick is just to know the type of wording that's used for these problems. O&M costs "this year" means that the costs occur throughout the year. The convention is to put these costs at the end of the year, meaning at time t = 1.

[@dagimdemissie8829]

. Compare the machines below using present worth analysis (12 Pts) Machine A Machine B First cost 25,000 30, 0000 Annual cost 10,000 10,000 Salvage value 7,000 4,000 Life, year 10 10 Interest 11%/yr 11% /yr

[@EngineeringEconomicsGuy]

Sorry for the delayed response. You can use the exact procedure described in this video: kzbin.info/www/bejne/pnOvomOBl8-fpKM Good luck!

[@EngineeringEconomicsGuy]

And you will need to add (+) the PW of the salvage value using the (P/F, 11%, 10) compound interest factor (for each alternative). It is also helpful to draw a cash flow diagram: kzbin.info/www/bejne/gZ-9lXuGqJVne6s