5.21 ABC Drinks purchases its 355 ml cans in large bulk from Wald-China Can Corp

Question

5.21 ABC Drinks purchases its 355 ml cans in large bulk from Wald-China Can Corporation. The finish on the anodized aluminum surface is produced by mechanical finishing technology called brushing or bead blasting. Engineers at Wald are switching to more efficient, faster, and cheaper machines to supply ABC. Use the estimates and MARR- 8% per year to select between two alternatives. Brush alternative: P-400,000; n 10 years; S $50,000; nonlabor AOC $-50,000 in year 1, decreasing by $5000 annually starting in year 2. Bead blasting alternative: P S-300,000; n is large, assume permanent; no salvage nonlabor AOC S-50,000 per year.

Explanation / Answer

Solution:

AW for Brush: -400,000 (A/P, 8%, 10) + 50,000 (A/F, 8%, 10) – 50,000 + 5,000 (P/G, 8%, 10)(A/P, 8%, 10)

(-400,000 * 0.1490) + (50,000 * 0.069) – 50,000 + (5,000 * 25.9768 * 0.1490)

-86,797

AW for Bead = -300,000 * 0.08 - 50,000 = -74,000

Use method Bead as AW is lowest

Related Questions

Navigate

• Browse (All)
• Browse 5
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.