Alpha Electronics can purchase a needed service for $90 per unit. The same servi

Question

Alpha Electronics can purchase a needed service for $90 per unit. The same service can be provided by equipment that costs $110,000 and that will have a salvage value of zero at the end of 10 years. Annual operating costs for the equipment will be $7,000 per year plus $40 per unit produced. MARR is 12.5%/year.

a) What is the future worth of the equipment if the expected production is 200 units/year?

b)What is the future worth of the equipment if the expected production is 500 units/year?

c)Determine the breakeven value for annual production that will return MARR on the investment in the new equipment

Explanation / Answer

3000

A)Future worth of machine if it produces 200/per year = 3000*Total of PVs of 1 @12.5% for 10 years =3000*5.54= 16620.

18000

B))Future worth of machine if it produces 500/per year = 18000*Total of PVs of 1 @12.5% for 10 years =18000*5.54 = 99720

C)Let the annual production be x

I.e( 50x-7000)*Total of PVs of 1 @12.5% for 10 years = 110000

(50X- 7000)*5.54 = 110000;50x-7000 = 110000/5.54; 50x = 19856+7000 ;x = 26856/50

The annula production should be 537 units per annum

3000

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