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

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