Question

# Please show all work with equations. No excel please! Thanks! QZY Inc. is evaluating new widget...

QZY Inc. is evaluating new widget machines offered by three companies.

MARR = 15%. From which company, if any, should you buy the widget machine? Use rate of return analysis.

 Company A Company B Company C First Cost, \$ 15,000 25,000 20,000 Maintenance & Operating Costs, \$ 1,600 400 900 Annual Benefit, \$ 8,000 13,000 9,000 Salvage Value, \$ 3,000 6,000 4,500 Useful Life, in years 3 3 3

Solution:-

You need to calculate the NPV to take the decision

NPV

Machine A = -15000 + (8000-1600)/(1+.15)^1 + (8000-1600)/(1+.15)^2 + (8000-1600)/(1+.15)^3 + 3000/(1+.15)^3 = 1584.19

Machine B = -25000 + (3000-400)/(1+.15)^1 + (3000-400)/(1+.15)^2 + (3000-400)/(1+.15)^3 + 6000/(1+.15)^3 = -15118.52

Machine C = -20000 + (9000-900)/(1+.15)^1 + (9000-900)/(1+.15)^2 + (9000-900)/(1+.15)^3 + 4500/(1+.15)^3 = 10233.25

Based on the above calculations, you should buy from Company C as it offers the highest NPV.

(Company C) is the correct answer.