Acme Semiconductoris expanding its facility and needs to add equipment. There ar

Question

Acme Semiconductoris expanding its facility and
needs to add equipment. There are three process tools
under consideration. You have been asked to perform an economic analysis to select the most appropriate tool to acquire. You have gathered the following
information for evaluation. Each of these tools has
a useful life of seven years. Acme’s accounting staff
has established a company-wide MARR of 8% per
year. Which one of the process tools should be
selected? (6.4)

                                   Tool A             Tool B            Tool C
Investment costs         $55,000         $45,000         $80,000
Annual expenses         $6,250          $8,550            $3,200
Annual revenue          $18,250 $16,750           $20,200
Market value               $18,000         $3,750             $22,000
IRR                            15.9%              7.9%                14.6%

Using both present worth approach and IRR approach

Sullivan, William G.; Wicks, Elin M.; Koelling, C. Patrick (2014-01-06). Engineering Economy (16th Edition) (Page 294). Prentice Hall. Kindle Edition.

Sullivan, William G.; Wicks, Elin M.; Koelling, C. Patrick (2014-01-06). Engineering Economy (16th Edition) (Page 294). Prentice Hall. Kindle Edition.

Explanation / Answer

Assumed market value given is slavage value of equipment at the end of 7 years

Since C has the highest NPV therefore TOOL C should be selected.

period particulars PVF @ 8% A B C Pv A Pv B Pv C 0 Investment 1 55,000 45,000 80,000 -55,000 -45,000 -80,000 1-7 annual expenses 5.205 6250 8550 3200 -32,531.25 -44,502.75 -16,656 1-7 annual revenue 5.205 18,250 16,750 20,200 94,991.25 87,183.75 105,141 7 salvage value 0.583 18,000 3,750 22,000 10,494 2186.25 12,826 NPV 17,954 -132.75 21,311

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.