1. Project 2 Team #13: Replacement Options

2. Team #13 Members Summarizer - Eddie Robles Organizer- Arin Saghatelian Technical- Sumeet Kals

3. Replacement Options Scenario Smurfit Newsprint Corporation uses a 300 hp induction motor in their cooling system. The motor has reached the end of its 10 year life cycle and is needing repair. When the motor breaks down, will it be more economical to repair the motor or replace it with a brand new one?

4. Replacement Analysis Basics Defender – The broken motor needing repair Challenger – The new motor used for replacement Defender Brand: US Motor Rating: 300 HP Model: R1190214 Efficiency: 85% Repair Cost: $3400.00 Challenger Brand: US Motor Rating: 300 HP Model: R1190214 Efficiency: 90% Cost: $10,600.00

5. Replacement Analysis Basics Determine analysis technique based on available data Find the marginal cost or EUAC of the Defender, depending on analysis technique, and the EUAC of the Challenger Make final decision based on findings

6. Defender Scenario Details DEFENDER MARR15% Useful Life5 Years Repair Motor Efficiency85% Power Needed300 hp Energy Cost$0.032 per kwh Operational HoursContinuous Efficiency Decrease per Year2% Market Value of Motor$5000 *Market Value Depreciates 5% Each Year

7. Defender Cash Flow Diagram $3,400 $75,263.63 $76,763.90 $78,294.18 $79,855.06 $81,447.16 $78,663.63 $76,763.90 $78,294.18 $79,855.06 $81,447.16

8. Challenger Scenario Details CHALLENGER MARR15% Useful Life10 Years Repair Motor Efficiency90% Power Needed300 hp Energy Cost$0.032 per kwh Operational HoursContinuous Efficiency Decrease per Year1% Market Value of Motor$10,600 *Market Value Depreciates 8% Each Year

9. Challenger Cash Flow Diagram $10,600 $69,012.49 $69,700.12 $70,394.62 $71,096.06 $72,520.07 $73,242.77 $73,972.70 $74,709.93 $71,804.52 $75,454.53

10. Marginal Cost is the year-by-year costs associated with keeping an asset Marginal Cost = Loss in Market Value + Forgone Interest + Operating & Maintenance Cost Marginal Cost

11. Marginal Cost of Defender Year EUAC of Defender 1 ($76,263.63) 2 ($77,713.90) 3 ($79,196.68) 4 ($80,712.44) 5 ($82,261.67) 6 ($76,263.63) 7 ($77,713.90) 8 ($79,196.68) 9 ($80,712.44) 10($82,261.67)

12. Analysis Decision Map DefenderChallenger Identify Participants of Comparison Defender Marginal Cost Data Marginal Cost Increasing? Find Defender Minimum Cost Life Find EUAC Over Given Life Technique #3: Compare EUAC of defender over remaining useful life with EUAC of challenger at its minimum cost life Technique #1: Compare the next-year marginal cost of defender with EUAC of challenger Technique #2: Compare EUAC of defender with EUAC of challenger, at their minimum cost lives Available Not Available No Yes

13. EUAC of Challenger Year EUAC of Challenger 1 ($71,450.50) 2 ($71,677.71) 3 ($71,907.59) 4 ($72,129.37) 5 ($72,330.39) 6 ($72,528.83) 7 ($72,748.13) 8 ($72,941.63) 9 ($73,115.22) 10($73,296.14) Minimum Cost Life

14. Results

15. Sensitivity Analysis

16. Conclusion After analyzing all our data, we have found that it is more economical to replace the motor with the “Challenger” When the defender total marginal cost is more than the challenger minimum EUAC it is more economical to go with the challenger

17. Resources Smurfit Newsprint Corp. Southern California Edison David Boyd- Senior Electrical Engineer Essentials of Engineering Economics Dr. Phillip Rosenkrantz

18. Internet Resources www.usmotors.com  Motor information and Cut Sheets www.sce.com  Energy cost information