Question

A company is looking to purchase a machine based on two options

	Machine A	Machine B
Initial cost AED	60,000	90,000
Annual cost/year AED	10,000	4,000
Salvage Value AED	4,000	0
Useful life in years	3	3

Using an interest rate of 12%, answer the below questions.

-       A.       B.       C.       D.       E.       F.       G.       H.       I.       J.	The annual worth (AW) of Machine A is nearest to
-       A.       B.       C.       D.       E.       F.       G.       H.       I.       J.	The annual worth (AW) of Machine B is nearest to
-       A.       B.       C.       D.       E.       F.       G.       H.       I.       J.	The present worth (PW) of Machine A is nearest to
-       A.       B.       C.       D.       E.       F.       G.       H.       I.       J.	The present worth (PW) of Machine B is nearest to
-       A.       B.       C.       D.       E.       F.       G.       H.       I.       J.	Which machine should be purchased?

A.	-$77,471
B.	-$32,045
C.	Machine A
D.	Machine B
E.	-$81,171
F.	-$45,594
G.	-$99,607
H.	-$36,166
I.	$33,796
J.	-$33,796

Answer 1

AW of machine A = (- 60000 – 10000*(1-1/1.12^3)/.12 + 4000/1.12^3)*(A/P, 12%, 3)

AW of machine A = (- 60000 - 10000*(1-1/1.12^3)/.12 + 4000/1.12^3)*.4163

AW of machine A = -$33792 or Alternative J

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AW of machine B = (- 90000 - 4000*(1-1/1.12^3)/.12)*(A/P, 12%, 3)

AW of machine B = (- 90000 - 4000*(1-1/1.12^3)/.12)*.4163

AW of machine B = -$41467 or alternative F

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PW of the machine A = (- 60000 - 10000*(1-1/1.12^3)/.12 + 4000/1.12^3)

PW of machine A = -$81171 or Alternative E

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PW of machine B = (- 90000 - 4000*(1-1/1.12^3)/.12)

PW of machine B = -$99607 or alternative G

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C. Machine A should be purchased.