2. ABC Industries manufactures laptops. It has two options to purchase motherboa
ID: 1164347 • Letter: 2
Question
2. ABC Industries manufactures laptops. It has two options to purchase motherboards. Cost and savings estimates are made, but the savings estimate is unreliable at this time. Use an Aw analysis at 10% per year to determine if the selection between Option A and Option B changes when the savings per year may vary as much as 40% from the best estimates made thus far First cost, S AOC, s per year Savings best estimate, S peryear Salvage, S Life, years Option A 60,000 7,500 6,000 4,000 Option B 37.500 -8,000 4,000 3,700Explanation / Answer
EUAW = EUAB - EUAC
EUABoption A = $ 16,000 + $ 4000 ( A/F , 10% , 5 years)
EUABoption A = $ 16,000 + $ 4000 * 0.163797
EUABoption A = $ 16,655.19
EUACoption A = $ 60,000 ( A/P , 10% , 5 years) + $ 7500
EUACoption A = $ 60,000 * 0.263797 + $ 7500
EUACoption A = $ 23,327.82
EUAW = $ 16,655.19 - $ 23,327.82
EUAW = - $ 6,672.63
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EUABoption B = $ 14,000 + $ 3700 ( A/F , 10% , 5 years)
EUABoption B = $ 14,000 + $ 3700 * 0.163797
EUABoption B = $ 14,606.05
EUACoption B = $ 37,500 ( A/P , 10% , 5 years) + $ 8000
EUACoption B = $ 37,500 * 0.263797 + $ 8000
EUACoption B = $ 17,892.39
EUAW = $ 14,606.05 - $ 17,892.39
EUACoption B = - $ 3,286.34
__________________________________________
Thus option B is the best option because its EUAW is greater than that of option A.
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