A company is planning to install a new automated plastic molding press. Four dif
ID: 1220806 • Letter: A
Question
A company is planning to install a new automated plastic molding press. Four different presses are available. The initial capital investments and annual expenses for these four mutually exclusive alternatives are as follows: Each press will produce the same number of units. Therefore, revenue is independent of the press selected and we can solve the problem as a cost-type situation (i.e, revenue can be ignored). However, because of different degrees of automation, the presses require different amounts and grades of labor and also have different annual operation and maintenance expenses. None is expected to have a market value at the end of its useful life, and the selected study period is five years. Any additional capital invested is expected to earn at least 10% per year before taxes. Which press should be chosen? (Compare the four molding processes using Present Worth Method and Annual Worth Method)Explanation / Answer
since the same number of non defective units per year produced and sold using each press,revenue can be disregarded.
The preferred alternative will be minimise the equivalent worth of total cost over the five year analysis period,ie,the four alternatives can be compared as cost alternatives, the PW,AW and FW calculation for alternatives P1 are,
PW(10%)=$240000-$31200(P/A,10%,5)=-$142,273
AW(10%)=$24000(F/A,10%,5)-$31200=-$37531
FW(10%)=$24000(F/P,10%,5)-$31200(F/A,10,5)=-$229,131
The PW AW and FW values for alternative P2,P3,P4 are similar calculation and shown for all four preses
hence,P2 values are PW=-$140,818,AW=-$37,148,FW=-$226788
P3 values are PW=-$145098,AW=-$38276,FW=-$233689
P4 values are PW=-$138734,AW=-$36598,FW=-$223431
Similarly P4 press selected
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