35. (Points: 5) considering purchasing a new boring machine to modernize one of

Question

35. (Points: 5) considering purchasing a new boring machine to modernize one of its production lines. Two types of boring machine are available on the market. The machines are described by the following characteristics A small manufacturing firm is Item First cost Service life Salvage value S569 Annual O&M; costs $729 CCA rate Machine A Machine B $7,234 S8,805 8 years 10 years S1,026 S606 30% 30% Determine the break-even annual O&M; costs for machine A so that the present worth of machine A is the same as that of machine B. Use a MARR (after tax) of 10% and a marginal tax rate of 30% (Don't use the S sign in your answer and round it to 2 decimal points) Answer

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Answer Present worth of the projects Project A Project B Annual O&M cost 729.00 606.00 CCA 218.70 181.80 Annual expenses 510.30 424.20 Saving in annual tax expenses 153.09 127.26 Cash outflow 357.21 296.94 Life (in years) 8 10 PVIFA 10%, years 5.3349 6.1446 PV of cash out flow 1905.68 1824.578 Salavge value 569 1026 PVIF 10%, years 0.4665 0.3855 PV of salvage 265.44 395.52 PV of total cash out flow 1640.24 1429.05 Initial cash out flow 7234.00 8805.00 Present worth 8874.24 10234.05 Calculation for brekeven present worth Project A Project B Annual O&M cost 1249.00 606.00 CCA 374.70 181.80 Annual expenses 874.30 424.20 Saving in annual tax expenses 262.29 127.26 Cash outflow 612.01 296.94 Life (in years) 8 10 PVIFA 10%, years 5.3349 6.1446 PV of cash out flow 3265.012 1824.578 Salavge value 569 1026 PVIF 10%, years 0.4665 0.3855 PV of salvage 265.44 395.52 PV of total cash out flow 2999.57 1429.05 Initial cash out flow 7234.00 8805.00 Present worth 10233.57 10234.05 ANNual O& M cost should be $ 1249.

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