Question

Flo's Frozen Yogurt shop is evaluating new dispensing machines.

The Flownator has a first cost of $31,484 and annual expenses of $9,823 that will increase by $478 per year. It will require an overhaul at the end of year 5 at a cost of $6,563. The Flownator will save $19,410 per year in labor costs. The Flownator has a salvage value of $8,139 and a lifespan of 10 years.

The YogGoo300 has a first cost of $20,398 and annual expenses of $3,570 that will increase by 2% per year. The YogGoo300 will save Flo's $10,144 per year in labor costs. The YogGoo300 has a lifespan of 6 years.

What must the salvage value of the YogGoo30 be to make it equally desirable to the Flownator? Use a MARR of 2% to make your calculation.

Enter your answer as follows: 12345

Round your answer. Do not use a dollar sign ("$"), any commas (","), or a decimal point (".").

Answer 1

AW of flownator = -31484 * (A/P,2%,10) - 9823 - 478*(A/G,2%,10) - 6563*(P/F,2%,5)*(A/P,2%,10) + 19410 + 8139*(A/F,2%,10)

= -31484 *0.111327 - 9823 - 478*4.336736 - 6563*0.905731*0.111327 + 19410 + 8139*0.091327

= 4090.57

For YogGoo 300

Let Salvage value be S, then

Present worth of geometric sereis when i is equal to g is given by C*n/(1+i)

Present cost of annual expenses = 3570 * 10 / (1+0.02) = 35000

AW of YogGoo 300 = -20398*(A/P,2%,6) - 35000 * (A/P,2%,6) + 10144 + S *(A/F,2%,6)

= -20398*0.178526 - 35000 *0.178526 + 10144 + S *0.158526

= 254.0166 + S *0.158526

As per given condition

254.0166 + S *0.158526 = 4090.57

S = (4090.57 - 254.02) / 0.158526 = 24201.39 ~ 24201