Question

"Your company needs a machine for the next 20 years. You are considering two different machines.
Machine A
Installation cost ($): 2,500,000
Annual O&M costs ($): 77,000
Service life (years): 20
Salvage value ($): 79,000
Annual income taxes ($): 65,000
Machine B
Installation cost ($): 1,250,000
Annual O&M costs ($): 107,000
Service life (years): 10
Salvage value ($): 46,000
Annual income taxes ($): 45,000
If your company s MARR is 14%, determine which machine you should buy. Assume that machine B will be available in the future at the same costs. Enter the Annual Equivalent Cost as a positive number of the preferred machine."

Answer 1

	Machine A	Machine B
Installation cost	2500000	1250000
Annual OM costs	77000	107000
Annual income taxes	65000	45000
Service life	20	10
Savage value	79000	46000

(A/P,i,n) = i (i+1)^N [ (1+i)^N-1]^-1

(A/F,i,n) = i[ (1+i)^N-1]^-1

Machine A AEC = -2500000 (A/P,14%,20) +79000 (A/F,14%,20) - 77000-65000

Machine A AEC = -377465 + 868 - 142000

Machine A AEC = -518597

Machine B AEC = -1250000 (A/P,14%,10) +46000 (A/F,14%,10) - 107000-45000

Machine B AEC = -239642 + 2379 - 152000

Machine B AEC = -389263

Select Machine B as

AEC of MAchine B > AEC of machine A