Required information An electric switch manufacturing company is trying to decid

Question

Required information An electric switch manufacturing company is trying to decide between three different assembly methods. Method A has an estimated first cost of $42,000, an annual operating cost (AOC) of $9,000, and a service life of 2 years. Method B will cost $82,000 to buy and will have an AOC of $9,000 over its 4-year service life. Method C costs $139,000 initially with an AOC of $4,000 over its 8-year life. Methods A and B will have no salvage value, but Method C will have equipment worth 8% of its first cost. Perform a future worth analysis to select the method ati: 11% per year. The future worth of method A is $ The future worth of method B is $ The future worth of method C is $ Method (Click to select)a is selected.

Explanation / Answer

Method:A To determine future worth

Given first cost =$42000;annual cost=$9000;life=2years

Slavage value=nil.

Formula=-slavagevalue+p(F/P,i,n)+A(F/A,i,n)

=-0+$42000(F/P,11%,2)+$9000(F/P,11%,2)

=$42000(1.2321)+$9000(2.11)

future worth method A =$70738.2

method B:

given first cost=$82000;annual cost=$9000;life =4years

Salvage value=nil

F=-salavage+p(F/P,11%,4)+A(F/A,11%,4)

=-0+$82000(1.518)+$9000(4.709)

=$124476+$42381=$166,857

future value of method B=$166,857

method c:

given

First cost=$139000;annual cost=$4000;life=8years

Salvage value =8%(139000)=$11,120

=-11,120+$139000(F/P,11%,8)+4000(F/A,11%,8)

=-11,120+320,256+47,416

=$356,552

Future value method c=$356,552

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