Grady’s Garden Shed is upgrading its watering system. Grady is
trying to choose between two different products.
The Water Factor has an initial cost of $110083. At the end of
life, the system can be salvaged for $12243. Maintenance of the
system is estimated to cost $1974 each year. The Water Factor will
save $74298 per year in water costs. This system will require
approximately 637 hours of employee time each year to monitor the
system and perform maintenance and repairs. The Water Factor has a
useful life of 3 years.
The WetThrift has an initial cost of $135415. At the end of
life, the system can be salvaged for $33595. The WetThrift uses
much less water, but it will require more employee hours to adjust
settings and maintain it. Maintenance is estimated to cost $1806
each year. The WetThrift will save $99708 per year in water costs.
This system will require approximately 2936 hours of employee time
each year. The WetThrift has a useful life of 4 years.
Grady pays his employees $15 per hour.
Comparing the two alternatives using present worth analysis and
an interest rate of 8% compounded annually.