QUESTION 1. (35p)
a. Hidromek is a globally known manufacturer of construction machinery. The company wants to build a spare part storage facility in Ankara. A civil engineer who is an alumnus of YTU has identified four different location options. The initial cost of earthwork and prefab building and the annual net cash flow estimates are given in the following table. The annual net cash flow series varies due to differences in maintenance, labor costs, transportation charges, etc. If the MARR is 10%, use incremental ROR analysis to select the economically best location. In the ROR analysis, use only present value analysis to compare alternatives.
Location | Initial Cost (S) | Annual Cash Flow | Life (years)
--------------------------------------------------------------
A | -200,000 | -XY*1000 + 22,000 | 30
B | -250,000 | -XY*1000 + 35,000 | 30
C | -190,000 | -XY*1000 + 19,500 | 30
D | -350,000 | +42,000 | 30
Note: XY = 21
b. Explain why we need an incremental approach for ROR analysis.
c. Give an example of a project where we need to use incremental ROR analysis.
Single-Payment Compound-Amount Factor
Single-Payment Present Worth Factor
Uniform Series Compound Amount Factor
Uniform Series Sinking Fund Factor
Uniform Series Present Worth Factor
Uniform Gradient Series Factor
Uniform Gradient Series Present Worth Factor
i = (1 + cc - 1) / n
