5) You are head of the production department at one of the leading car manufactu

Question

5) You are head of the production department at one of the leading car manufacturing companios in Turkey. In order to satisfy demand and deliver orders within lead tm, ihe company needs to increase production capacity. After long discussion with engineers in the department, the decision to purchase new machine with larger capacity is made. However, there are only two options, Machine A and Machine B, and you need to select one of them as soon as possible to start production. Machine A: Purchasing price 80000TL, service life 6 years, salvage value 20000 TL, annual operating cost 7000 TL, extra income taxes 2500 TL per year Machine B: Purchasing price 45500TL, service life 6 years, salvage value is negligible, annual operating cost 12000 TL. Which machine will you decide to purchase using annual worth analysis? Interest rate is 12%.

Explanation / Answer

Annual Worth analysis Machine A CR = -80,000(A/P, 12%, 6) + 20,000(A/F,12%,6) AW = -80,000(A/P, 12%, 6) + 20000(A/F,12%,6) -9500 AW = -80000 x 0.2432 + 20000 x 0.1232 - 7000 - 2500 AW = -26492 Machine B CR = -45,500(A/P, 12%, 6) AW = -45,500(A/P, 12%, 6) + 0(A/F,12%,6) -12000 AW = -45,500 x 0.2432 + 0 x 0.1232 - 12000 AW = -23065.60 I would prefer Machine B as the annual worth is lower

Related Questions

Navigate

• Browse (All)
• Browse 5
• Subjects

---

---

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