A company is trying to decide between two machines for its manufacturing line. T

Question

A company is trying to decide between two machines for its manufacturing line. The Process1000 has an initial cost of $51178 and operating costs of $11 per hour. It will allow the company to produce a higher quality product, providing an annual benefit of $82258. The company will use the Process1000 11358 hours per year. The Process1000 has a useful life 4 years and an estimated salvage value of $15526 at the end of its useful life The Super X has an initial cost of $73997. It is a bigger machine and can process more at a time so the company will ony need to use it for 7733 hours per year. The Super X has an estimated benefit of $89493 per year. The Super X will have a useful life of 7 years and a salvage value of $31282 at the end of its useful life. Using a MARR of 2%, what is the maximum operating cost per hour at which the Super X could run to make it equally desirable to the Process1000? Enter your answer as follows: 12.34 Round your answer to 2 decimal places. Do not use a dollar sign ("$") or any commas

Explanation / Answer

Find the annual equivalent cost of two methods

AE of Process1000 = 51178(A/P, 2%, 4) + 11x11358 - 82258 - 15526(A/F, 2%, 4) = 51178*0.26262 + 42680 - 15526*0.24262 = $52353

Operating cost per hour = $11.

AE of Super X = 73997(A/P, 2%, 7) + OCx7733 - 89493 - 31282(A/F, 2%, 7) =  73997*0.15451 + 7733OC - 89493 - 31282*0.13451 = 82267 + 7733OC

Operating cost per hour = (82267 + 7733OC)/7733 = 10.638 + OC

Find OC such that

10.638 + OC = 11

OC = 0.36

Hence its maximum operating cost can be $0.36

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