3. A CNC machine can be replaced with one of two models. The basic model with a

Question

3. A CNC machine can be replaced with one of two models. The basic model with a life of 8 years costs $60,000 and is expected to bring in net $18,000 annually. For the deluxe model, the data are 8 years, $100,000, and $30,000 respectively. Assuming i a 8%, calculate the discounted payback period for each project (25 points) A CNC machine can be replaced with one of two models. The basic model with a life of 8 years costs $60,000 and is expected to bring in net $18,000 annually. For the deluxe model, the data are 8 years, $100,000, and $30,000 respectively If the which model is a better choice on the basis of the PW criterion? (25points) MARR = 10%,

Explanation / Answer

3)

Answer:

Basic Model:

Discounted Payback Period = 4 + |-381.72| / 12250.50 = 4.03 years

Deluxe model:

Discounted Payback Period = 4 + |-636.19| / 20417.50 = 4.03 years

Year(n) Cash Flow(CF) Present Value Factor @ 8%
PV$1=1/(1+0.08)^n Discounted Cash Flow
CF×PV$1 Cumulative Discounted cash flow 0 -60000 1 -60000.00 -60000.00 1 18000 0.9259 16666.67 -43333.33 2 18000 0.8573 15432.10 -27901.23 3 18000 0.7938 14288.98 -13612.25 4 18000 0.7350 13230.54 -381.72 5 18000 0.6806 12250.50 11868.78 6 18000 0.6302 11343.05 23211.83 7 18000 0.5835 10502.83 33714.66 8 18000 0.5403 9724.84 43439.50

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