Si Two alternative machines will produce the same product, but one is capable of

Question

Si Two alternative machines will produce the same product, but one is capable of higher-quality work, which can be expected to return greater revenue. The following are relevant data. Determine which is the better alternative, assuming repeatability and using SL depreciation, an income-tax rate of 35%, and an after-tax MARR of 9% Machine A Machine B Capital investment Life Terminal BV (and MV) Annual receipts Annual expenses 12 years $4,000 $158,000 144,000 $15,000$33,000 7 years $1,500 $194,000 $162,000 Click the icon to view the interest and annuity table for discrete compounding when the MARR is 9% per year Ar Caicuiate tne Avw vaiue tor tne Macnine A AWA(9%-SL?(Round to the nearest dollar.) Calculate the AW value fo Machine A AWB(9%) SORou Machine B llar ) Based on the AW values w/ is the better alternative

Explanation / Answer

Annual Worth = -Initial Cost *(A/P, i, n) – Annual Expenses + Annual Revenue + Salvage Value*(A/F, i, n)

Where, “i” is required rate of return and “n” is expected life in number of years.

AWA = -$15,000*(A/P, 9%, 12) - $144,000 + $158,000 + $4,000*(A/F, 9%, 12)
=> (-$15,000*0.1397) - $144,000 + $158,000 + ($4,000*0.0497)
= $12,103.3

AWB = -$33,000*(A/P, 9%, 7) - $162,000 + $194,000 + $1,500*(A/F, 9%, 7)
=> (-$33,000*0.1987) - $162,000 + $194,000 + ($1,500*0.1087)
= $25,605.95

Since Annual Worth for Machine B is greater, it is the better alternative.

Note: For A/P and A/F factor, please refer to table available online.

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

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