Question 1 20 pts Yupi Inc. is considering replacing a machine. These are the da

Question

Question 1 20 pts Yupi Inc. is considering replacing a machine. These are the data for both the used and new machine. Used machine: the machine was purchased for $17,130 one year ago, the current salvage value is $11360 and is expected to have a scrap value of $6754 whenever it is retired. This used machine still has 3 years left of service. From now on, the operating and Maintenance costs are $2230 for the first year and expected to increase by $1556 thereafter. New Machine: machine costs $14197 and is expected to have a scrap value of $7249 whenever it is retired. Operating and Maintenance costs are $1572 for the first year and expected to increase by $1628 thereafter. The service life of this machine is 3 years. If the MARR is 11%, determine the minimum equivalent uniform annual cost associated with the optimal economic life of the machine that offers the lowest EUAC. Note: round your answer to two decimal places, and do not include spaces,currency signs, plus or minus signs, nor commas.

Explanation / Answer

Since EUAC is minimum in case of Used machine, it is better to continue with the used machine.

Operating and Maintenace Costs PV Year Used Machine New Machine PVF(11%) Used Machine New Machine 1 2230 1572 0.900900901 2009 1416 2 3786 3200 0.811622433 3073 2597 3 5342 4828 0.731191381 3906 3530 8988 7544 Calculation of EUAC: Used Machine New Machine A Initial Cash Flow: Cost -14197 Less: Current Salvage Value of Used Machine 11360 Net Cash Inflow -2837 B PV of Recurring Cash Flows: PV of Operating and maintenance Costs -8988 -7544 C PV of Scrap Value: Scrap Value 6754 7249 PVIF (11%) 0.731191381 0.731191381 PV of Scrap Value 4938.466587 5300.406321 D NPV (A+B+C) -4049 -5080 E PVAF (11%,3) 2.443714715 2.443714715 F EUAC (D/E) -1657.054847 -2078.881647

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