50. Packaging equipment for Xi Cling Wrap costs 960.000 $23,000 per year for 3 y

Question

50. Packaging equipment for Xi Cling Wrap costs 960.000 $23,000 per year for 3 years. The equipment will have a market value of $10,000 after 3 years. The equin be leased for $21,000 per year, payable at the beginning of each year. Xi Cling's MARR is 10 percentlyear. R an annual worth analysis, determine if the packaging equipment should be purchased or leased. ased Section 7.4 age va 51/ Alternatives I, 2, and 3 have lives of 3.4 and 6 years, respectively. Their net cash flow (NCF) and salvage! (SV) profiles are as follows: Alternative 1 Alternative 2 Alternative 3 NCF3 -$70,000 $30,000 $30,000 sV2 SV3 $70,000 $50,000 $30,000 $20,000 EOY SV1 NCF2 $20,000 $8,000 $8,000 $28,000 $20,000 $20,000 $20,000 $20,000 $30,000 $20,000 $10,00004$10,00 $30,000 $0 $30,000 $30,000 $5,000 $30,000$2,000

Explanation / Answer

A) Alternatives A, B & C have 3, 4, and 6-year lives

Least common multiple = 12 years

Shortest life = 3 years

Longest life = 6 years

C) Annual Worth of each cash flow

The equivalent uniform annual worth of Alternative-1 i.e. AW1 is computed as follows;

AW1 = -20,000(A/P, I, n) +8,000 +28,000 (A/F, i, n) (A/P, 8%, 3) )

        =-20,000 (A/P, 8%, 3) +8,000 +28,000 (A/F, 8%, 3) (P/F, 8%, 3)

        =20,000*.3880 +8,000 +(28,000*.3080*.7938)

        =-7,760+8,000+6,845

        =$7,085

AW2 = -40,000(A/P, 8%, 4) +20,000

        =-40,000*0.3019 +20,000

        =-12,076+20,000

       = $ 7,924

AW3 = -(70,000)(A/P, I, n) +30,000 +2000(A/F, i, n)

=(-70,000*0.2163)+30,000+(2,000*0.1363)

=-8841+30,000+273

=$ 21,423

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