Question

for the below two machines and based on CC analysis which machine we should select? MARR=10%.

	Machine A	Machine B
First cost, $	24,999	100,000
Annual cost, $/year	14,525	7,000
Salvage value, $	6,970	-
Life, years	3	infinite

Answer the below question:

A- the CC for machine A=

Answer 1

Answer

i = 10%

Convert machine A's cash flows into A and then divide by i

A1 = -24,999 (A/P, 10%, 3) - 14,525 + 6970(A/F, 10%, 3)

A1 = -24,999*0.4021 - 14,525 + 6970*0.3021

A1 = -10,052.1 - 14525 + 2105.64

A1 = $-22,471.46

CC1 = A1/i = $-22,471.46 / 10% = $-224,714

Therefore, CC for Machine A is $-224,714

Capitalized Cost for Machine B is:

CC2 = -100,000 - 7000/10% = $-170,000

Comparing the Capitalized Costs of the two alternatives, Machine B has lesser cost and hence should be chosen.