Question

A company is considering a new piece of equipment that will save them $1730 per year. The machine costs $8100. After 8 years in service the machine will have to be replaced. It has no salvage value at the end of eight years. Given a MARR of 9.4% per year. What is the present worth of the machine?

$

Sofia an intern from Temple Engineering School finds an alternative manufacturer who offers the same piece of equipment with a guarantee that it will work for 16 years. It cost $10400 and offers the exact same savings for 16 years. It also has no salvage value. What is the present worth of this machine?

$

Answer 1

ANSWER:

1) machine cost = -$8,100 , savings = $1,730 , n = 8 years , marr = 9.4%

Present worth of machine = machine cost + savings(p/a,i,n)

Present worth of machine = -8,100 + 1,730(p/a,9.4%,8)

present worth of machine = -8,100 + 1,730 * 5.45

present worth of machine = -8,100 + 9,434.52

present worth of machine = $1,334.52

2) machine cost purchased by sofia = -$10,400 , savings = $1,730 , n = 16 years , marr = 9.4%

Present worth of machine purchased by sofia = machine cost + savings(p/a,i,n)

Present worth of machine purchased by sofia = -10,400 + 1,730(p/a,9.4%,16)

present worth of machine purchased by sofia = -10,400 + 1,730 * 8.11

present worth of machine purchased by sofia = -10,400 + 14,032.65

present worth of machine purchased by sofia = $5,932.65