Question

"You plan to operate the same type of machine for 10 years. Machine A lasts 5 years and Machine B lasts 10 years. Machine A costs $7,000 and Machine B costs $9,000. The salvage value of Machine A is $3,000 and the salvage value of Machine B is $1,600. Annual operation and maintenance costs are $2,000 for Machine A and $2,400 for Machine B. Both machines can be purchased in the future at the same price as today, and their salvage values and annual costs will remain as they are now. Your MARR is 8%. Enter the Annual Equivalent Cost (AEC) as a POSITIVE number for the machine that should be selected."

Answer #1

**Annual equivalent costs** converts the present
value of costs of unequal lived mutually exclusive projects into an
equivalent annual amount/cost.

**Computation of equivalent annual cost for machine A
& machine B -**

**Recommendation** Since machine A has a lower
equivalent annual cost, it is preferred investment.

Please check with your answer and let me know.

"You plan to operate the same type of machine for 12 years.
Machine A lasts 4 years and Machine B lasts 6 years. Machine A
costs $8,000 and Machine B costs $12,000. The salvage value of
Machine A is $4,000 and the salvage value of Machine B is $2,000.
Annual operation and maintenance costs are $3,000 for Machine A and
$3,500 for Machine B. Both machines can be purchased in the future
at the same price as today, and their...

You plan to operate the same type of machine for 12 years. Machine
A lasts 4 years and Machine B lasts 6 years. Machine A costs
$11,000 and Machine B costs $15,000. The salvage value of Machine A
is $3,000 and the salvage value of Machine B is $1,700. Annual
operation and maintenance costs are $5,000 for Machine A and $3,900
for Machine B. Both machines can be purchased in the future at the
same price as today, and their...

Machine A lasts 5 years and Machine B lasts 10 years. Machine A
costs $6,000 and Machine B costs $9,000. The salvage value of
Machine A is $4,000 and the salvage value of Machine B is $2,200.
Annual operation and maintenance costs are $5,000 for Machine A and
$3,900 for Machine B. Both machines can be purchased in the future
at the same price as today, and their salvage values and annual
costs will remain as they are now. Your...

"Your company needs a machine for the next 20 years. You are
considering two different machines.
Machine A
Installation cost ($): 2,500,000
Annual O&M costs ($): 77,000
Service life (years): 20
Salvage value ($): 79,000
Annual income taxes ($): 65,000
Machine B
Installation cost ($): 1,250,000
Annual O&M costs ($): 107,000
Service life (years): 10
Salvage value ($): 46,000
Annual income taxes ($): 45,000
If your company s MARR is 14%, determine which machine you should
buy. Assume that machine...

Machine A costs $30,000 to purchase and is worth $9,000 in 5
years. Machine B costs $15,000 to purchase and is worth $2,000 in 2
years. Assume that these machines are needed for 20 years and can
be repurchased at the same price in the future. (use 13% interest
rate)
Compute the Annual Equivalent Cost of each machine and subtract
those values. Record the difference as a POSITIVE if Machine A is
best, or a NEGATIVE if Machine B is...

5.30 A company needs to purchase a new machine to maintain its
level of production. The company is considering three different
machines. The costs, savings and service life related to each
machine are listed in the table below.
Machine A
Machine B
Machine C
First Cost
$37,500
$31,000
$35,000
Annual Savings
$13,500
$12,000
$12,750
Annual Maintenance
$3,000 the first year
and increasing by
$600 every year
thereafter
$2,500
$2,000
Salvage Value
$5,000
$11,000
$13,000
Service Life
6 years
3 years...

Please show all work with equations. No excel please!
Thanks!
QZY Inc. is evaluating new widget machines offered by three
companies.
MARR = 15%. From which company, if any, should you buy the
widget machine? Use rate of return analysis.
Company A
Company B
Company C
First Cost, $
15,000
25,000
20,000
Maintenance & Operating Costs, $
1,600
400
900
Annual Benefit, $
8,000
13,000
9,000
Salvage Value, $
3,000
6,000
4,500
Useful Life, in years
3
3
3

VYS Inc will purchase a new machine that costs $30,000 and is
expected to last 12 years with a salvage value of $3,000. Annual
operating expenses for first year is $9,000 and increase by $200
each year thereafter. Annual income is expected to be $12,000 per
year. If VYS’s MARR is 10%, determine the NFW of the machine
purchase.

The manager in a canned food processing plant is trying to
decide between two labeling machines.
Assume an interest rate of 6%. Use annual cash flow
analysis to determine which machine should be chosen
Machine A
Machine B
First cost
$15,000
$25,000
Maintenance and operating costs
1,600
400
Annual benefit
8,000
13,000
Salvage value
3,000
6,000
Useful life, in years
6
10

Machine A costs $15,000 and will last 5 years, at which time the
value of the machine is $5,000 (it is worth $7,000 in 4 years).
Machine B costs $12,000 and will last 3 years, after which the
machine is worth $4,000. You can lease a Machine B (only if you
purchased one initially) for $3,000 per year (payment due at end of
year). You need a machine for 4 years (required service period),
and either machine can be repurchased...

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