The following table summarizes information which are associated with three new 3
ID: 2996605 • Letter: T
Question
The following table summarizes information which are associated with three new 3D Printers being considered for use in a manufacturing plant. Note that M&O stands for Maintenance & Operation Cost.
A
B
C
Useful Life (Years)
9
13
11
First Cost
$2,300,000
$2,780,000
$2,540,000
Salvage Value
$82,000
$118,000
$97,000
Annual Benefit
$580,000
$670,000
$650,000
M&O
$65,000
$78,000
$71,000
M&O Gradient
$11,000
$15,000
$12,500
The company's interest rate (MARR) is 12%. Which 3D Printer should the company choose? Use Annual Cash Flow Analysis.
A
B
C
Useful Life (Years)
9
13
11
First Cost
$2,300,000
$2,780,000
$2,540,000
Salvage Value
$82,000
$118,000
$97,000
Annual Benefit
$580,000
$670,000
$650,000
M&O
$65,000
$78,000
$71,000
M&O Gradient
$11,000
$15,000
$12,500
Explanation / Answer
Calculation of Net Annual Cash Flows:
A
B
C
Annual Benefit
$ 580,000
$ 670,000
$ 650,000
Less: M&O
$ (65,000)
$ (78,000)
$ (71,000)
Less: M&O Gradient
$ (11,000)
$ (15,000)
$ (12,500)
Net Annual Cash Flows
$ 504,000
$ 577,000
$ 566,500
Net Present value = (Net Annual cash flows x Annuity P.V. factor) + (Salvage value / (1 + R)N)
Calculation of Net Annual Cash Flows:
A
B
C
Annual Benefit
$ 580,000
$ 670,000
$ 650,000
Less: M&O
$ (65,000)
$ (78,000)
$ (71,000)
Less: M&O Gradient
$ (11,000)
$ (15,000)
$ (12,500)
Net Annual Cash Flows
$ 504,000
$ 577,000
$ 566,500
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