Question

Kiwidale Dairy is considering purchasing a new ice-cream maker. Two models, Smoothie and Creamy, are available and their information is given below (all costs and profits are in dollars):

	Smoothie	Creamy
First Cost	14,500	34,500
Service Life	12 Years	14 Years
Annual Profit	4,450	11,050
Annual Operating Cost	975	3,650
Salvage Value	2,100	5,250

What method of analysis would you use to most easily select the model to purchase? [1/1]

		PW (Standard)
		AW (Standard)
		PW (Repeated Lives)
		All of the above

Answer 1

The annual worth method is the simplest and less complicated method. Because for 1 period as well as more than 1 period the annual worth would remain the same.

In case of present worth analysis the period of analysis will be the LCM of useful life of 12 and 14. Thus, the period of analysis will be 84 years. Thus, we are required to repeat the investment a number of times.

So, I would select the Annual worth method to determine the to select the model.

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