uullar. (A) Sales and cost data for two mutually exclusive designs for a machine
ID: 1130827 • Letter: U
Question
uullar. (A) Sales and cost data for two mutually exclusive designs for a machine to make temperature sensors are shown in the table below. Your MARR is 1 study period is 8 years. Using the annual worth (AW) method of calculation, which machine should you buy? What is the AW of this machine? 5% and the Machine A $60,000 19,000 $6.00 $2.00 $20,000 $18,000 Machine B $35,000 18,000 $7.00 $3.00 $24,000 $13,000 c capital Investment E = Estimated Units sold per year Unit selling price cy variable cost per unit Cf = fixed annual expenses- F Market Value at end of useful life Answer Box:Explanation / Answer
Machine A:
Annual revenue = $6 * 19,000 = $114,000
Annual cost (Fixed + variable) = 20,000 + ($2 * 19,000) = $58,000
Net Annual revenue = 114,000 - 58,000 = $56,000
AW = -60,000(A/P, 15%, 8) + 56,000 + 18,000(A/F, 15%, 8)
= -60,000(0.2229) + 56,000 + 18,000(0.0729)
= -13,374 + 56,000 + 1312.2
= $43,938.2
Machine B:
Annual revenue = $7 * 18,000 = $126,000
Annual cost (Fixed + variable) = 24,000 + ($3 * 18,000) = $78,000
Net Annual revenue = 126,000 - 78,000 = $48,000
AW = -35,000(A/P, 15%, 8) + 48,000 + 13,000(A/F, 15%, 8)
= -35,000(0.2229) + 48,000 + 13,000(0.0729)
= -7,801.5 + 48,000 + 947.7
= $41,146.2
Since the AW of machine A is greater than machine B, therefore, machine A you should buy.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.