To reduce manufacturing costs, equipment for Process A and B are being evaluated

Question

To reduce manufacturing costs, equipment for Process A and B are being evaluated at Company X. The information for each process is detailed bellow:

Process B

Determine which process should be selected based on the following models:

a. Present value with a 18% annual interest, compounded quarterly

b. Equivalent uniform querterly worth at 15% annual interest compounded quarterly

c. Capitalized cost at 6% annual interest compunded quarterly.

Process A

Process B

Initial Cost $180,000 $250,000 O & M $7,500 quarterly $6,000 quarterly Useful life 2 yrs 4 yrs Salvage value $40,000 $55,000

Explanation / Answer

B is correct answer because it reduces the manufacturing cost

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