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An engineer has been studying a lean process line to determine if the company should switch...

An engineer has been studying a lean process line to determine if the company should switch from one machine (Machine A) to another (Machine B). Assume an interest rate of 10%. Use annual cash flow analysis to determine which machine should be chosen.

Machine A Machine B

First Cost $35,000 $40,000

M&O Costs $2,000 $1,500

Annual Benefit $13,000 $15,000

Salvage Value $10,000 $4,000

Useful Life (years) 15 11

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Answer - Machine B should be chosen as it is having higher annual cash flow or equivalent annual worth than machine A. Machine A has an annual worth of $6713.15 whereas machine B has an annual worth of $7557.33, which is $844.18 higher than Machine A.

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