Salvage Value [Engineering Economy]

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SUMMARY

The discussion centers on calculating the justified payment for a sprinkler system that saves $750 annually in insurance premiums, with a replacement interval of 20 years and a salvage value of 10% of its initial cost. The solution requires determining the Present Worth (PW) of the annual savings and the future salvage value, considering a discount rate of 7%. The correct answer to the problem is $8,156, as confirmed by the textbook, emphasizing the importance of understanding the principles of engineering economy in financial decision-making.

PREREQUISITES
  • Understanding of Present Worth (PW) calculations
  • Familiarity with Future Worth (FW) concepts
  • Knowledge of discount rates and their application in financial analysis
  • Basic principles of engineering economy
NEXT STEPS
  • Study Present Worth calculations for periodic cash flows
  • Learn about Future Worth analysis and its applications
  • Research the impact of different discount rates on investment decisions
  • Explore resources on engineering economy principles and practices
USEFUL FOR

This discussion is beneficial for engineering students, financial analysts, and professionals involved in cost analysis and investment decision-making in engineering projects.

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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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