Salvage Value [Engineering Economy]

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To determine how much the owner should pay for the sprinkler system, the Present Worth (PW) of the annual savings of $750 and the salvage value must be calculated. The salvage value is 10% of the initial cost and is realized at the end of the 20-year lifespan. The owner needs to account for the time value of money, given a discount rate of 7%. Resources or textbooks that explain PW calculations for periodic payments and future worth are sought for further understanding. Mastering these concepts is essential for solving similar engineering economy problems effectively.
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Homework Statement



How much would the owner of a building be justified in paying for a sprinkler system that will save $750 a year in insurance premiums, if the system has to be replaced every 20 yrs and has a salvage value equal to 10% of its initial cost? Assume money is worth 7%.


The Attempt at a Solution



I just don't know where to commence, although the book does have the answer of $8156, I could place the answer, but I want to learn how to do this problem, as the answer won't be given to me on the test. :blushing:

Also, forgive me if this forum does not offer help in these type of problems, but since I saw engineering and this is an engineering course, then I just went for it. :biggrin:
 
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One has to determine the Present Worth (PW) of the periodic savings $750/yr and the one time salvage value over the 20 year lifetime.

Does one have access to a book or resource on how to treat PW based on periodic payments and future worth (FW)?
 

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