Question

# "Your company needs a machine for the next 20 years. You are considering two different machines....

"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."

#### Homework Answers

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

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