steps with rule we use… please od 2. Two manufacturers supply MRI systems for me

Question

steps with rule we use… please

od 2. Two manufacturers supply MRI systems for medical imaging. St. Jude's Hospital wishes to replace its current MRI equipment that was purchased 8 years ago with the newer technology and clarity of a state of- the-art system. System K will have a first cost of $1,600,000, an operating cost of $70,000 per year, and a salvage value of $400,000 after its 4-year life. System L will have a first cost of $2,100,000, an operating cost of $50,000 the first year with an expected increase of $3000 per year thereafter, and no salvage value after its 8-year life. Which system should its 8-year life. Which system should be selected on the basis of a future worth analysis at an interest rate of 12% per year? t157 -70 too + 26 315 ,79--124 y89.2i 1 -"Zo ooo 5

Explanation / Answer

Since System K has a lower future worth of costs, K should be selected.

System K Year Cost Salvage Net Cost Compounding Future Value ($) ($) ($) Factor @12% ($) (A) (B) (C)=(A)-(B) (D) (C) x (D) 0 16,00,000 16,00,000 1.5735 25,17,631 1 70,000 70,000 1.4049 98,345 2 70,000 70,000 1.2544 87,808 3 70,000 70,000 1.1200 78,400 4 70,000 4,00,000 -3,30,000 1.0000 -3,30,000 Future Value = 24,52,184 System L Year Cost Salvage Net Cost Compounding Future Value ($) ($) ($) Factor @12% ($) (A) (B) (C)=(A)-(B) (D) (C) x (D) 0 21,00,000 21,00,000 2.4760 51,99,523 1 50,000 50,000 2.2107 1,10,534 2 53,000 53,000 1.9738 1,04,613 3 56,000 56,000 1.7623 98,691 4 59,000 59,000 1.5735 92,838 5 62,000 62,000 1.4049 87,106 6 65,000 65,000 1.2544 81,536 7 68,000 68,000 1.1200 76,160 8 71,000 0 71,000 1.0000 71,000 Future Value = 59,22,000

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