A company is planning to purchase a new machine to produce a product. The engine
ID: 1097967 • Letter: A
Question
A company is planning to purchase a new machine to produce a product. The engineer in charge of the project has determined the costs associated with the two final alternatives. The company will view positively investments with a MARR of 10%. Will these machines achieve that? Which is the better alternative?
Machine X
Machine Y
Investment cost
$55,000
$72,000
Economic life
5 years
6 years
Annual revenue
$22,500
$23,500
Annual costs
Labor
$ 6,200
$ 5,700
Electrical
$ 1,100
$ 1,200
Maintenance
$ 600
$ 650
Taxes, insurance
$ 600
$ 650
Total annual costs
$ 8,500
$ 8,200
Salvage value
$ 5,500
$ 7,000
Determine the benefit-cost ratio.?
Machine X
Machine Y
Investment cost
$55,000
$72,000
Economic life
5 years
6 years
Annual revenue
$22,500
$23,500
Annual costs
Labor
$ 6,200
$ 5,700
Electrical
$ 1,100
$ 1,200
Maintenance
$ 600
$ 650
Taxes, insurance
$ 600
$ 650
Total annual costs
$ 8,500
$ 8,200
Salvage value
$ 5,500
$ 7,000
Explanation / Answer
Particulars/Year (Machine-X) 0 1 2 3 4 5 Initial Investment(I) 55000 Savings=22500-8500 (A) 14000 14000 14000 14000 14000 Depriciation=(55000-5500)/5 (B) 9900 9900 9900 9900 9900 Salvage Value
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