Your company is interested in purchasing a new rolling press to use in the facto

Question

Your company is interested in purchasing a new rolling press to use in the factory. Two different models are available to satisfy your current production requirements. The selection is mutually exclusive, meaning the company must choose one of the two machines. Model A: This model costs $300,000 and requires annual maintenance expenses of $20,000. The machine has a service life of 5 years and a salvage value of $75,000 at the end of its life. Model B: This model costs $200,000 and requires annual maintenance expenses of $45,000. The machine has a service life of 5 years and a salvage value of $50,000 at the end of its life. At an MARR of 15%, which machine should be chosen?

Explanation / Answer

present value of total cost for machine A=300000+20000*PVIFA(12%,5)-75000/(1.12^5)=329443 present value of total cost for machine B= 200000+45000*PVIFA(12%,5)-50000/1.12^5 =333628 best option is machine A

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