None Your company needs a machine for the next seven years, and you have two choices (assume an annual interest rate of15%): Machine A costs $100,000 and has an annual operating cost of $47,000. Machine A has a useful life of sevenyears and a salvage value of $15,000 at the end of its life. Machine B costs $120,000 and has an annual operating costof $15,000. Machine B has a useful life of three years and no salvage value. At the end of its life, it will need to bereplaced with a new machine. Assume the new machine will share the exactly same cost. 1) Draw the cash flow diagramfor the two options. 2) Make your decision based on the NPW calculation for the two machines. 3) Which machine willyou pick if you use AE calculation instead? 4) Are the decisions resulted from NPW and AE consistent?

To thoroughly analyze and explain the solution to the decision problem between Machine A and Machine…

Answered: Your company needs a machine for the…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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A company is considering buying one of the following two computers. Computer Computer Initial Cost $9,571.44 $13,882.9 Salvage $1,896.27 $3,604.11 Value Useful Life 10 years 13 years $ 281.64 $213.58 Annual year 1 to (Year 1 to 8) Maintenance 10 $378.24 (Year 9 to 13) Interest Rate 6% 6% If computer B was to be purchased and kept forever (after year 13) without any change in the annual maintenance cost, what would be the present worth of all expenditures?
Please no written by hand Appledale Dairy is considering upgrading an old ice-cream maker. Upgrading is available at two levels: moderate and extensive. Moderate upgrading costs $6500 now and yields annual savings of $3300 in the first year, $3000 in the second year, $2700 in the third year, and so on. Extensive upgrading costs $10 550 and saves $7600 in the first year. The savings then decrease by 20 percent each year thereafter. If the upgraded icecream maker will last for seven years, which upgrading option is better? Use a present worth comparison. Appledale’s MARR is 8 percent.
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6. You purchase a new piece of equipment for $65,000. Your net cash flow the first year is $18,000 but will increase by $2,500 per year the next year and the same for each year after. The equipment has a ten-year service life and a salvage value of $5,000. The interest rate is 9%. What is the annual capital cost and what is the equivalent annual savings?
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Covington Corporation purchased a vibratoryfinishing machine for $20,000 in year 0. The usefullife of the machine is 10 years, at the end of whichthe machine is estimated to have a salvage value ofzero. The machine generates net annual revenuesof $6,000. The annual operating and maintenanceexpenses are estimated to be $1,000. If Covington’sMARR is 15%, how many years will it take beforethis machine becomes profitable?
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