Three products will be manufacturéd in a new facility. They each require an iden

Question

Three products will be manufacturéd in a new facility. They each require an identical manufacturing operation, but different production times, on a broaching machine. Two alternative types of broaching machines (M1 and M2) are being considered for purchase. One machine type must be selected. For the same level of annual demand for the three products, annual production requirements (máchine hours) and annual operating expenses (per machine) are listed on the right. Product Machine M1 Machine M2 1.560 h760 hr ABC MNQ STV 1,750 hr 2,550 hr 5,850 hr $17,000 per machine 1,100 hr 2,250 hr 4,100 hr $20,000 per machine Capital investment Expected life Annual expenses year$6,500 per m eight years $4,000 per machine $6,500 per machine Click the icon to view the additional information. Click the icon to view the GDS Recovery Rates (x) for the 5-year property class. Click the icon to view the interest and annuity table for discrete compounding when the MARR is 13% per year AWM1(13%)- (Round to the nearest hundreds.) Calculate the AW value for Machine M2 ANM2(13%wn (Round to the nearest hundreds.) Based on the AW values, select Machine Enter your answer in each of the answer boxes.

Explanation / Answer

We calculate aw value for only one life cycle.

AW=CR-A

where CR is capital recovery and capital recovery is find out by adding annual cost and salvage value

Salvage value is the estimated value of the assets until their end of useful life.

First we will find the CR

CR=-P(A/P, i,n)+SV(A/F,i,n)

where A is annual operating cost and P is the intial investment and SV is salvage value

The value of MARR is given and equal to 13%

For machine 1 (expected life is given which is 5 years) and the annual expense(A) is equal to 4,000 per machine

the AW= -17,000(A/P,13,5) -4,000

For machine 2 (expected life is given which is 8 years) and the annual expense(A) is equal to 6,500 per machine

the AW= -20,000(A/P,13,8)-6,500

The machine having high AW will be selected.

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