Presentation Transcript
Slide 1:Example on the annual equivalence analysis
Example :Example KFUPM has a backup electricity generator unit, which has been in service for a long time.
Because of the high oil burnout, the maintenance department has asked to overhaul the unit.
It has been estimated that overhauling the unit will bring a saving of 140,000 riyals in real terms in natural gas consumption.
Savings from reduced oil burnout is estimated at 40,000 riyals per year in real terms.
ARAMCO has a contractual agreement with KFUPM to increase prices of natural gas by 4% and oil prices by 5% annually.
Slide 3:After the overhaul, the unit is expected to run for 12 years, without perceived salvage value.
KFUPM uses a 10% interest rate for any project justification.
What would be the annual equivalent savings due to the overhaul?
Slide 4:The equivalent present worths for both savings are
Slide 5:The net present worth is 1,485,238 riyals.
The equivalent annual worth is The two values are different because of rounding off