NOTE: Show your works clearly and underline answer 1. Consider the following two
ID: 2781951 • Letter: N
Question
NOTE: Show your works clearly and underline answer 1. Consider the following two mutually exclusive alternatives relate to an improvement project, and recommend which one should be implemented. Capital investment Useful life period, in year Machine X $20000 Machine Y $30000 10 Assume repeatability is applicable, MARR 20%, and analysis period 10 years. Calculate the incremental rate of return for the incremental cash flow when you decide to choose Machine Y over Machine X. Is that decision a good choice? (15 points)Explanation / Answer
Machine X:
Present cost = $20,000
PV = 20,000 = (PMT/0.20)*(1 – 1/1.20^5) = 2.99061214 PMT
PMT = 6687.59
EUAC = $6687.59
Machine Y:
Present cost = $30,000
PV = 30,000 = (PMT/0.20)*(1 – 1/1.20^10) = 4.19247209 PMT
PMT = 7155.68
EUAC = $7155.68
Investment on Machine X is cheaper based on annual basis analysis.
In this problem, only initial capital investments are given but the future cash flows are nit given. Hence, we can’t compute incremental cash flows.
We have just CF0 = -30,000 – (-20,000) = -10,000
Come back to me if you have any doubt.
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