Question

Please show all work with equations, no excel. Thank you.

The Detroit MicroBrews Corp. is opening a new production facility. Two types of stills are being considered and the cost estimates in the table below have been developed. Using ROR analysis, determine which alternative should be selected (if any). The MARR is 15%.

	MASHER	SQUEEZER
Life, Years	4	6
First Cost	$10,000	$15,000
Salvage Value	0	2,000
Maintenance & Operating Cost (Year 1)	800	1,000
Maintenance & Operating Cost arithmetic gradient increment above year 1 cost (i.e. starting 2nd year)	200	400

Answer 1

Minimum per year present value cost =

MASHER :

year	costs$	discount 15%	Present value of the cost $
0	10000	1	10000
1	800	0.870	696
2	1000	0.756	756
3	1200	0.658	789.60
4	1400	0.572	800.80
Total			13042.40
Per year present value cost			$3260.60

SQUEEZER :

year	costs$	discount 15%	Present value of the cost $
0	15000	1	15000
1	1000	0.870870	870
2	1400	0.756	1058.40
3	1800	0.658	1184.40
4	2200	0.572	1258.40
5	2600	0.497	1292.20
6	3000	0.432	1296
6	(2000)	0.432	(864)
Total			21095.40
Per year present value cost			$3515.90

So, At MARR of 15%, Project MASHER should be selected being low "Per year present value cost" of $3260.60.