How to Get Your Product Chapter 5 Homework 6 Required information Part 1 of 2 An
ID: 1138730 • Letter: H
Question
How to Get Your Product Chapter 5 Homework 6 Required information Part 1 of 2 An electric switch manufacturing company is trying to decide between three different assembly methods. Method A has an estimated first cost of $32.000, an annual operating cost (AOC) of $6,000, and a service life of 2 years $72,000 to buy and will have an AOC of $4,000 over its 4-year service life $4,000 over its 8-year life. Methods A and B will have no salvage value, but Method C will have equipment worth 8% of its first cost B will cost C costs $119,000 initially with an AOC of 10 Perform a future worth analysis to select the method at 10% per year The future worth of method A is $ The future worth of method B is s The future worth of method C is $ Metho v (Click to select) selectedExplanation / Answer
Lets evaluate each option one by one:-
1. Method A
Initial Cost = $32000
Annual cost = $ 6000
n(time) = 2 years.
Annual cost of project = Initial cost/Annuity factor(10 %,2) + Annual operating cost
32000/1.7355 + 6000 = 24,438.5
2. Machine B
Initial Cost = $72000
Annual cost = $ 4000
n(time) = 4 years.
Annual cost of project = Initial cost / Annuity factor(10 %,4) + Annual operating cost
72000 / 3.1699 + 4000 = 26,713.7
2. Machine C
Initial Cost = $119000
Annual cost = $ 4000, Salvage value = 8% of 119000 = 9520
n(time) = 8 years.
Annual cost of project = Initial cost/Annuity factor(10 %,8) + Annual operating cost - PV of Salvage value(10%,8)/n
119000/5.3350 + 4000 - 9520*0.46651 / 8 = 22,305.5 + 4000 - 555.15 = 26,860.65
Conclusion:- Sine the Annual cost or Future worth of A is lowest therefore we should choose Project A.
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