Four years ago, the Attaboy Lawn Mower Company purchased a piece of equipment. B

ID: 1151193 • Letter: F

Question

Four years ago, the Attaboy Lawn Mower Company purchased a piece of equipment. Because of increasing maintenance costs for this equipment, a new piece of machinery is being considered for the assembly line Suppose a $6,500 MV is available now for the defender. Perform a before-tax analysis, using a before-tax MARR of 12%, to determine which alternative to select Assume that MV of the defender 0 three years from now. Be sure to utilize a uniform gradient in your analysis of the defender. Click the icon to view the cost characteristics of the defender (present equipment) and the challenger. Click the icon to view the interest and annuity table for discrete compounding when MARR-12% per year. The EUAC Defender is (Round to the nearest dollar)

Explanation / Answer

Solution:

Both the alternatives has different life span. So, they need to be scale down to same life span.

Now, Given

Defender

Challenger

Original Cost

8000

10500

Maintenance

Year 1

500

120

Year 2 to 10

Increasing by 75

Salvage value

3500

Life span

EUAC of defender = -500 – 8000 (A|P, 12%, 7) - 75(A|G, 12%, 7)

= -500 -8000 (.2191)- 75 (2.5515)

=-500 – 1752.8 – 191.36 = -2444.16

EUAC of Challenger= -120 – 10500 (A|P, 12%, 3) + 3500 (A|F, 12%, 3)

= -120 – 10500 (0.4163) + 3500 (.2963)

= -3454.1

Since both EUAC are negative. Choose alternative defender to minimise EUAC.