Question

For the below ME alternatives , which machine should be selected based on the AW analysis. MARR=10%

	Machine A	Machine B	Machine C
First cost, $	15000	26,460	10000
Annual cost, $/year	8,701	6,000	4,000
Salvage value, $	4,000	5,000	1,000
Life, years	3	6	2

Answer the below questions :

B- AW for machine B=

Answer 1

   Machine A   Machine B   Machine C     
First cost, $   15,000   26,460   10,000     
Annual cost, $/year   8,701   6,000   4,000     
Salvage value, $    4,000   5000   1,000     
Life, years   3   6   2     

AW-A = -15,000 (A/P,10%,3) + 8701 + 4,000 (A/F,10%,3) = -15,000 * 0.4021 + 8701 + 4,000 * 0.3021 = 3877.74
AW-B = -26,460 (A/P,10%,6) + 6000 + 5,000 (A/F,10%,6) = -26,460 * 0.2296 + 6000 + 5,000 * 0.1296 = 572.63
AW-B = -10,000 (A/P,10%,2) + 4000 + 1,000 (A/F,10%,2) = -10,000 * 0.5762 + 4000 + 1,000 * 0.4761 = -1285.71
AW-A should be selected