Montreal Construction needs to replace one of their heavy machines. They are con

Question

Montreal Construction needs to replace one of their heavy machines. They are considering buyi either Mach X or Mach Y, which have the following data Data Life, Years First Cost (FC Annual Benefit(AB) Mach X Mach Y $222,000 73,000 1,200 18,000 600 42,000 88,000 1300 AB Gradient (ABG Annual Maintenance &Operating; Cost (M&O; M&O; Gradient (M&OG;) Salvage Value 48,000 The Accounting Department of Montreal Construction reveals that a loan must be secured to purchase any machine. The loan data are as follows Data Down Payment (% of FC Mach X 25% Mach Y 25% ears Annual Loan Payment $33,208.75 S38,229.63 The loan payments will be made annually with 10% interest. Montreal Construction assumes MARR = 12%. Using the Net Present Worth (NPW) analysis, answer the following questions (53) The NPW for Mach Y, using only 6 years cash-flow, is close to a) $40,082 b) $45,5006 $41,088 d) S38,350 (54) he NPW for Mach Y, using the analysis period, is close to a) $75,286 b) $70,513 c) S74,255 d) S71,919

Explanation / Answer

Q53

PW of Mach Y = 73000* P/A (12%,6 years)+ 1200* P/G(12%,6 years) -18000* P/A (12%,6 years)- 600* P/G(12%,6 years) -222000*25%+ 42000*1/1.1^6 - 38229.63*(P/A,12%,6)=

=73000*4.111+ 1200*8.93-18000*4.111 - 600*8.93 - 222000*25%+ 21278-38229.63*4.111

= $40079

Hence it is close to $40082

Q54

This implies that the PW analysis is repeated 4 times.initially and then at the end of year 6, 12, 18

Total NPW for 24 years = 40079+ 40079/1.12^6+ 40079/1.12^12 + 40079/1.12^18 = 75883

Hence NPW is close to $75286

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