Project Management

I need some help to decide whether to buy a new product or to continue using the old one.

ToBuy or Not To Buy

The Problem:

You work at a water treatment plant. There is a water line which has a pump which is aging. The pump is 150 HP and was purchased and installed in

1990

at a cost of $47,000. The pump is repaired each year during the annual maintenance shutdown. Every third year, the seal must also be replaced during the shutdown.

It is proposed to purchase a new, high-efficiency pump at a cost of $46,000. Installation labor is expected to be $2,700. The new pump uses 20% less electricity. Replacement cost and maintenance costs (labor and materials) are also projected to be lower and less labor-intensive. Consider the “cost of capital” as 12%.

1. Is the proposed purchase a good investment at this time (i.e. year

2011

2. If the proposed purchase a good investment at a later time, when?

3. If you decide buying the new pump is a good idea, in how many years has it “paid for itself” in savings?

$600

$450

$900

$500

$1 050

$600

$650

$675

$1 350

(est.)

$750

$1 500

(est.)

$800

(est.)

$825

(est.)

$900

$1 800

$2 700

(est.)

OLD PUMP
	YEAR		LABOR		MAT’LS		TOTAL						ELECT.	ANN. COST
1990	$9 500	$37 500	$47 000	<=purchased	$31 500	$78 500
1991		$200		$400			$600	$31 973	$32 573
1992	$225		$450		$675	$32 452	$33 127
1993		$500	$2 200			$2 700	$32 939	$35 639
1994	$275		$550		$825	$33 433	$34 258
1995	$300			$900	$33 934	$34 834
1996			$650	$2 500	$3 150	$34 443	$37 593
1997		$350	$700		$1 050	$34 960	$36 010
1998	$375		$750	$1 125	$35 485	$36 610
1999		$800	$2 800	$3 600	$36 017	$39 617
2000	$425	$850	$1 275	$36 557	$37 832
2001		$1 350	$37 105	$38 455
2002	$950	$3 100	$4 050	$37 662	$41 712
2003	$1 000		$1 500	$38 227	$39 727
2004	$525	$1 575	$38 800	$40 375
2005	$1 100	$3 400	$4 500	$39 382	$43 882
2006	$575	$1 150	$1 725	$39 973	$41 698
2007	$1 200		$1 800	$40 573	$42 373
2008	$1 250	$3 700	$4 950	$41 181	$46 131
2009	$1 300	$1 950				$41 799	$43 749
2010	$2 025	$42 426	$44 451
2011	$1 400	$4 000	$5 400							(est.)	$43 062	$48 462
2012	$725	$1 450	$2 175	$43 708	$45 883
2013	$2 250	$44 364	$46 614
2014	$1 550	$4 300	$5 850	$45 029	$50 879
2015	$1 600	$2 400	$45 705	$48 105
2016	$1 650	$2 475	$46 390	$48 865
2017	$1 700	$4 600	$6 300	$47 086	$53 386
2018	$875	$1 750	$2 625	$47 792	$50 417
2019	$48 509	$51 209
2020	$1 850	$4 900	$6 750	$49 237	$55 987

YEAR

LABOR

MAT’LS

TOTAL

ELECT.

$2 700

$200

$350

$550

(est.)

$400

$650

(est.)

NEW PUMP
		Ann. Cost.
2010	$46 000	$48 700	<=Purchased	$33 941	$82 641
2011	$34 450	$35 000
2012	$210	$360	$570	$34 967	$35 537
2013	$220	$370	$590	$35 491	$36 081
2014	$230	$380	$610	$36 023	$36 633
2015	$480	$780	$1 260	$36 564	$37 824
2016	$250	$37 112	$37 762
2017	$260	$410	$670	$37 669	$38 339
2018	$270	$420	$690	$38 234	$38 924
2019	$280	$430	$710	$38 808	$39 518
2020	$580	$880	$1 460	$39 390	$40 850

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