Comparison of Alternatives: A-V Engineering Fabrication deals with large scale s
ID: 2770164 • Letter: C
Question
Comparison of Alternatives:
A-V Engineering Fabrication deals with large scale sophisticated rubber products, military hover
craft skirts, inflatable fuel and water tanks. A new plant has recently being purchased. The new plant
needs a computer controlled cutting machine. There are two alternatives: (i) a new cutting machine
can be purchased, or (ii) repair the vibration and noise problem of an existing machine upon.
In order to fix the currently operating machine, it requires a new ‘Sound Absorption’ Curtain which
cost $7,000 and few other parts replacements which is around $2000. Labor cost to fix the machine
is around $9,000. The management is looking into the cost-benefits of using either of the two
options based on few alternatives costs analysis.
Determine the Present worth, Annual cost, and Rate of return values to choose the best
investment option: (i) purchasing a new machine or (ii) fixing the old machine, based on the values
in the table below?
1. Present Worth Analysis
Alternate-A calls for new machine which needs only shipping and installation costs. Alternate-B
calls for the repairing an existing machine which require to purchase EasiWrap Acoustic Blanket
System, few other parts and labor costs. The money is worth is 10 percent. Estimated cost data
for the two plans are as follows:
Criterion New Machine Repairing
(alternate-A) (alternate-B)
New machine purchase $88,500 0
EasiWrap Acoustic Blanket System 0 7,000
purchase
Installation / $1500 $9000
Parts replacing & repair cost
Shipping expenses 2,000 300
Machine Life 15 years 10 years
Updating cost at the end of 10th year 0 $5000
Operating costs $12000/yr $15000/yr
Which alternative would you prefer?
Explanation / Answer
Well, based on the information given here, one can choose from the given options above. Here, the most important aspect for the business or to any business is to save more and be more economical.
So, on this parameter, option second, that is to repair the existing machine is a more suitable option for the company against buying a whole new machine. This is due to the fact that after calculating the pros and cons of the two given options, new machine will be more costlier to the company compared to the repairing of the present machinery.
Hence, repairing is the correct option for the company, at the given moment.
Regards.
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