You are considering two types of machines for a manufacturing process. Machine A

Question

You are considering two types of machines for a manufacturing process. Machine A has a first cost of $75,200, and its salvage value at the end of six years of estimated service life is $21,000. The operating costs of this machine are estimated to be $6,800 per year. Extra income taxes are estimated at $2,400 per year. Machine B has a first cost of $44,000, and its salvage value at the end of six years' service is estimated to be negligible. The annual operating costs will be $11,500. Compare these two mutually exclusive alternatives by the present-worth method at i = 13%.

Explanation / Answer

Answer: Machine A:

PW (13%) = -$75,200 – ($6,800 + $2,400) (P/A, 13%, 6) + $21,000(P/F, 13%, 6)

= -$101,891

Machine B:

PW (13%) = -$44,000 – $11,500(P/A, 13%, 6)

= -$89,971

Machine B is a better choice.

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

---

---

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