Break Even Analysis without MARR

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Tallulah

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Jun 21, 2011
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****o:

I am stuck on how to start the a break even analysis for the 2 options below without being provided MARR. We were taught how to use excel and interest tables, so I dont know how to calculate when I dont have MARR. Please note, I am just asking how to start this, not looking for a handout. The question is summarized in the table below, but the question is looking for the following calculations:

a) How many hours per shift is a generator needed if the contractor is indifferent between the two generators?
b)What is the annual cost if the generator is needed for 2.5 hours per shift and what generator is preferred?

GeneratorFixed Costs ($/yr)O&M Costs ($/hour)ShiftsWorking Days
140007.003-8 hour250
280005.503-8 hour250
 
update

Okay, so I have been playing around with some ideas. I really have no idea what formula I need to use for this problem so I though maybe total annual cost woudl work-- Tc=Fc+Vc? Any thoughts?

a)4000 +7.00x = 8000 + 5.50x
x = 2666.7 hours a year
(2666.7 hours/year)(1yr/250days) = 10.67 hours/day
10.67/3 = 3.56 hours/shift
b)Fixed Cost 1 $ 4,000.00Fixed Cost 2 $ 8,000.00
Variable Cost 1 $ 7.00xVariable Cost 2 $ 5.50x
n = 2.5 hoursn = 2.5 hours
Total Cost 1= 4000+ 7.00x Total Cost 2=8000+ 5.50x
4000 + 7(2.5)8000+ 5.50(2.5)
$ 4,017.50 $ 8,013.75
 
Hey Jeff:

Thanks for looking through this. For part b, I used 2.5 hours because the question asked waht the annual cost would be if the generator was used for 2.5 hour/shift. However, I wasnt sure if I needed to take this a step further because to account for the per shift. Should I instead use 2.5 x 3 to calculate the annual cost?
 
Jeff: Ahh, okay. I have trouble with keeping units consistent sometimes. Am I on the right track with this?

2.5 hours x 3 shifts x 250 days = 1875 total hours per year
total annual cost= 4000 + 7(1875) = $17,125
 
Yes, I actually remember learning it during high school chemstry. I still get confused sometimes though..dont know why. Thank you for your help.
 
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