solving by use Rate of Return analysis l U) lechnology you Dick Dickerson Constr

Question

solving by use Rate of Return analysis

l U) lechnology you Dick Dickerson Construction, Inc. has asked o help them select a new backhoe. You have a choice between a wheel-mounted version, which costs $60,000 and has an expected life of 5 years and a salvage value of $2000, and a track-mounted one, which costs $80,000, with a 7-year life and an expected salvage value of $10,000. Both machines will achieve the same productivity. Interest is 8%. hich one will you recommend? Use an annual worth analysis.

Explanation / Answer

For the wheel-mounted:

EUAC = $60,000(A/P, 8%, 5) - $20,000(A/F, 8%, 5) =$60,000(0.2505) - $20,000(0.1705)

= $11,620

For the track-mounted:

EUAC = $80,000(A/P, 8%, 7) - $10,000(A/F, 8%, 7) =$80,000(0.1921) - $10,000(0.1121)

=$14,247

So choose the wheel-mounted.......

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