A company must decide between two new machines. The first machine has an initial

Question

A company must decide between two new machines. The first machine has an initial cost of 45000 with an estimated life of 12 years and a salvage value of 8000. Its annual operating cost is 4000. The second machine has an initial cost of 30000, the same estimated life with a salvage value of 0. Its annual operating cost is 3000. The interest rate environment causes an MARR of 6 % per year. What is the annual worth of each machine? What decision rule should be used for determining the preferred machine? Which machine is recommended?

Explanation / Answer

machine 1 machine 2 annual cost 4000 3000 AF   @ 6% $8.3838 $8.3838 PV of annual cash flow $477.11 $357.83 initial cost 45000 30000 total cost $45,477.11 $30,357.83 b As lives of both machine are same, present worth rule should be used to choose the machine c machine 2 with lesser present worth of cash flow of $ 30357.83 is recommended

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

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