Question

Sparty Granite & Marble Inc. needs to purchase additional equipment for its manufacturing facility and is considering two options. Model A costs $45,000 and is expected to have a life of 4 years. Model B costs $70,000 but it is expected to last 6 years. Model B is more energy efficient and would save the company an average of $2,000 per year in reduced utility costs. At the end of its life, either model can be replaced with a similar model at the same cost. The salvage value is expected to be 10% of original cost for either model. Using annual worth analysis and an interest rate of 5% per year, determine the better alternative. Please show all work, not excel, and cash flow diagrams. Thank you.

Answer 1