Question

The machines shown below are under consideration for an improvement to an automated candy bar wrapping process.

	Machine C	Machine D
First cost, $	–50,000	–65,000
Annual cost, $/year	–10,000	–15,000
Salvage value, $	12,000	25,000
Life, years	4	7

(Source: Blank and Tarquin)

Question 4 (10 points)

Based on the data provided and using an interest rate of 8% per year, the Annual Worth “AW” of Machine C is closest to:

(All the alternatives presented below were calculated using compound interest factor tables including all decimal places)

1. AW_C = –$22,433
2. AW_C = –$24,705
3. AW_C = –$27,433
4. AW_C = –$25,096

Question 5 (10 points)

Based on the data provided and using an interest rate of 8% per year, the correct equation to calculate the Capital Recovery “CR” of Machine D is:

1. CR_D= –65,000(P/A, 8%, 7) + 25,000(F/A, 8%, 7)
2. CR_D= –65,000(A/P, 8%, 7) + 25,000(A/F, 8%, 7) –15,000
3. CR_D= –65,000(A/P, 8%, 7) + 25,000(A/F, 8%, 7) –15,000(A/P, 8%, 7)
4. CR_D= –65,000(A/P, 8%, 7) + 25,000(A/F, 8%, 7)

Answer 1

Question 4:

Given that i = 8%

Annual worth for meachine C is = -50,000 * (A/P, 8%, 4) - 10,000 + 12,000 * (A/F, 8%, 4)

= -50,000 * 0.3019 - 10,000 + 12,000 * 0.2219

= -15,095 - 10,000 + 2662.8

= -22,432.2

Annual worth for machine C is -22,432.2

Option a is correct.

Question 5:

Capital recovery = First cost*(A/P,i,n) + salvage value*(A/F,i,n)

Capital recovery equation for meachine D is

CRD = -65,000 * (A/P, 8%, 7) + 25,000 * (A/F, 8%,7)

option d is correct.

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