Using a present worth method

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An electric motor is rated at 10 horsepower (HP) and costs $800. Its full load efficiency is specified to be 85%. A 10 HP high-efficiency motor has an efficiency of 90%, and costs $1, 200. It is estimated that the motors will operate at a rated 10 HP output for 1, 500 hours a year, and the cost of energy will be $0.07 per kilowatt-hour. Each motor is expected to have a 15-year life. At the end of 15 years, the first motor will have a salvage value of $50 and the second motor will have a salvage value of $100. Consider the hurdle rate to be 8%. Using a present worth method, determine which motor should be installed. Show- all work.

Reference no: EM131236870

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