Name You have a business making fishing rod holders. There are two options for i
ID: 2441091 • Letter: N
Question
Name You have a business making fishing rod holders. There are two options for improvement. One b s new, cheap molder which will last for five years at the intended use. A more professional model will last longer (15 years). The table below summarizes the costs. king fishing rod holders. There are two options for improvement. One isa expensive new (H) N HobbyistNew pro athelatie Initial cost $25,000 $230,000 Annual operating cost $120,000 $110,000 $10000 $25,000 Salvage 15 Machine life, years5 Using an interest rate (MARR) of 12% per year, determine which option he should select to maximize his profits over 15 years.Explanation / Answer
Take a common period of 15 years as the LCM is 15
Find the present cost of the two systems. System S has a present value cycle repeated thrice.
Present cost of H for 1 cycle = (25000 + 120,000(P/A, 12%, 5) – 10000(P/F, 12%, 5) = 451,899
Present cost of H for all 3 cycles (15 years) = 451,899 + 451,899(P/F, 12%, 5) + 451,899(P/F, 12%, 10)
= $853,818.
Present cost of N = (230000 + 110,000(P/A, 12%, 15) – 25000(P/F, 12%, 15) = $974628
Since present cost of Hobbyist lathe is less, we should use this method.
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