03 Jun Question Problem 5-2 A project engineer with EnvironCare is
Question
Problem 5-2
A project engineer with EnvironCare is assigned to start up a new office in a city where a 6-year
contract has been finalized to take and to analyze ozone-level readings. Two lease options are
available, each with a first cost, annual lease cost, and deposit-return estimates shown below.
First cost, $
Annual lease cost, $ per year
Deposit return, $
Lease term, years
Location A
-15,000
-3,500
1,000
6
Location B
-18,000
-3,100
2,000
9
a) Determine which leave option should be selected on the basis of a present worth
comparison, if the MARR is 15% per year.
b) EnviroCare has a standard practice of evaluating all projects over a 5-year period. If a
study period of 5 years is used and the deposit returns are not expected to change,
which location should be selected?
c) Which location should be selected over a 6-year study period if the deposit return at
location B is estimated to be $6,000 after 6 years?
*Questions: (I need your help to complete those questions)
1. What happened in the problem when you changed the interest rate from 15% to
10%, with the least common multiple (18 years)? Did the decision changed? Did the
present value quantities change? If they are different, why did they change?
2. What happened in the problem when you changed the interest rate from 15% to
10%, with the time study period of 6 years? Did the decision change? Did the
present value quantities change? If they are different, why did they change?
3. Why is the best location different when using the least common multiple (18
years) and the time study period of 6 years?
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