Please answer all 2 questions. Thank you 11) A costs $30,000 to purchase and is
ID: 2728772 • Letter: P
Question
Please answer all 2 questions.
Thank you
11) A costs $30,000 to purchase and is worth $9,000 in Machine 5 years. Machine B costs $15,000 to purchase and is worth $2,000 in 2 years. Assume that these machines are needed for 20 years and can be repurchased at the same price in the future. use 13% interest rate) What is the BEST (most efficient time period for analysis? A cost B cost Which machine should you purchase? 12) Machine A costs $15,000 and will last 5 years, at which time the value of the machine is $5,000 (it is worth $7,000 in 4 years). Machine B costs $12,000 and will last 3 years, after which the machine is worth $4,000. You can lease a Machine B (only if you purchased one initially) for $3,000 per year (payment due at end of year). You need a machine for 4 years, and either machine can be repurchased in the future for the same price. If both machines have the same production speed and capacity, which machine should you purchase (Interest 10% annually, show your workExplanation / Answer
Question 11:
We need to compute Annual Equivalent cost of these machines.
EAC = NPV/ PVIFA(n, R)
Machine A
EAC = (Salvage value x PVIF (n, R) – Initial Investment)/ PVIFA (n, R)
= (9000 x PVIF (5, 13%) – 30,000) / PVIFA (5, 13%)
= (9000 x 0.5427599 -30,000) / 3.517231
= -7,140.61
Therefore, EAC for machine A is 7,140.61.
Machine B
EAC = (Salvage value x PVIF (n, R) – Initial Investment)/ PVIFA (n, R)
= (2000 x PVIF (2, 13%) – 15,000) / PVIFA (2, 13%)
= (2000 x 0.78314668 -15,000) / 1.66810
= -8053.30
Therefore, EAC for machine B is 8,053.30.
Since the Equivalent Annual cost of machine A is lower, machine A should be selected.
Most Efficient time for analysis would be = 2 x5 = 10 years
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