Page 335 - Improving Machinery Reliability

Life Cycle Cost Studies 301

Table 5-17
Summary of Cost Profiles for Each Alternative

Year
0 1 1 1 2 1 3 1 4 [ 5 1 6 1 7 1 8 1 9 I 10
Alternative #l-Exlsting Solo ANSI Pump
capluai 0
cost 57827 57827 57827 57827 57827 57827 57827 57827 57827 60827
Sanngs 0 0 0 0 0 0 0 0 0 0
De pr eu a tr 0 n 0 0 0 0 0 0 0 0 0 0 0
Profit W4 laxes -57827 -57827 -57827 W827 -57827 -57827 -57827 -57827 -57827 -60827
Tax Provision 21974 21974 21974 21974 21974 21974 21974 21974 21974 23114
Ne( Income -35853 -35853 -35853 -35853 -35853 -35853 -35853 -35853 -35853 -37713
Add Back Depteuahon 0 0 0’ 0 0 0 0 0 0 0
Cash Flow 0 -35853 -35853 -35853 -35853 -35853 -35853 -35853 -35853 -35853 -37713
Discount Factors 1W 112 125 140 157 176 197 221 248 277 311
Present Value 0 -32011 -28582 -25519 -22785 -20344 -18154 -16218 -14480 -12929 -12142
Met Present Value I (zll3.175)~using 12% discount rale
a
Alternallve #&Add ParallellRedundanl ANSI Pump -
Capital 13500
cost 3500 21493 21493 21493 21493 21493 21493 21493 21493 21493 24493
Savings 0 0 0 0 0 0 0 0 0 0
Depreclalron 1350 1350 1350 1350 1350 1350 1350 1350 1350 1350
Profi! W4 (axes -22843 -22843 -22843 -22843 -22843 42843 -22843 -22843 -22843 -25843
Tax Provision 8680 8580 8680 8680 8680 8680 8680 8680 8680 9820
Net lmome -14163 -14163 -14163 -14163 -14163 -14163 -14163 -14163 -14163 -16023
Add Back Deprecrauon 1350 1350 1350 1350 1350 1350 1350 1350 1350 1350
Cash Flow -17000 -12813 -12813 -12813 -12813 -12813 -12813 -12813 -12813 -12813 -14673
Discount Faclors 100 112 125 140 1.57 1.76 1.97 2.21 2.48 2.77 3.11
Present Value -17000 -11440 -10214 -9120 -8143 -7270 -6491 -5796 -5175 -4620 -4724
Net Present Value I I (89.993)lusinp a 12% discounl rate
Allernative #3-Replace ANSI Pump With Solo API Pump
Capital I8000
Cor1 12900 44444 44444 44444 44444 44444 44444 44444 44444 44444 47444
Savlngs 0 0 0 0 0 0 0 0 0 0
Depredation iaoo 1800 1800 1800 1800 1800 1800 1800 1800 IBOO
Prolit b/4 laxer -46244 -46244 46244 -46244 -46244 -46244 -46244 -46244 -46244 -49244
Tax Provision 17573 17573 17573 17573 17573 17573 17573 17573 17573 18713
Ne1 Income -28671 -28671 -28671 -28671 -28671 -28671 -28671 -28671 -28671 -30531
Add Back Depreuation 1800 1800 I800 1800 1800 1800 18W 1800 1800 1800
Cash Flow -30900 -26871 -26871 -26871 -26871 -26871 -26871 *26871 -26871 -26871 -28731
Discount Factors 1.00 1.12 1.25 1.40 1.57 1.76 1.97 2.21 2.48 2.77 3.11
Present Value -30900 -23992 -21422 -19126 -17077 -15247 -13614 -12155 -10853 -9690 -9251
a
Net PresenlValuel S (183,328)~using 12% discount rale
tives are shown in Figure 5-16 for a quick grasp of how the break-even points com-
pare to the base case.
Cumulative present values are shown on the y-axis to combine cost of money with
time and show how the effects of expenditures and cost reductions play together. Of
course, the issue is to choose alternatives that payback quickly and payback big
returns!
The parallel ANSI pump cost line crosses the datum line for the solo ANSI pump
in -1 year; therefore, the costs are less for the redundant system after passing the
one-year mark. The solo API pump crosses the datum line in -5 years and the cost
are less than the solo ANSI pump, but the redundant ANSI pump system continues
to have a lower cost and thus is more desirable.

Step 8: Pareto charts of vital few cost contributors. The purpose of Pareto charts
is to identify the vital few cost contributors so the details can be itemized for sensi-
tivity analysis and ignore the trivial many issues. Pareto rules say that 10% to 20%