(30 points) An Engineer has received two bids for an equipment to be installed i

Question

(30 points) An Engineer has received two bids for an equipment to be installed in a plant. The companys MARR is 10%. He/She needs to decide which bid should be accepted. Note that Installed cost includes an initial investment cost Alternative Equipment A. Equipment B. Installed Cost $45,000 ; $54,000. Useful life 10; 20. Annual Cost $2,700; $2850. Salvage Value $3,000; $4,500. a. (10 points) If the need for this kind of equipment is prolonged as far as the plant is operating Then, which equipment needs to be selected. Use an equivalent worth method. b. (10 points) If a project with the equipment needs to ?nish in 10 years. Then, which equipment is the better choice. Assume that we can calculate a market value of Equipment B using the imputed market value technique. Use an equivalent worth method. c. (10 points) Use the External Rate of Return(ERR) method to evaluate alternatives in part b. Assume that the ?rms external reinvestment rate() is same as MARR.

Explanation / Answer

here given cost for A: coat 45000-anual cost 2700*10 years and slevage value 3000*10.. so the total is 48000$, but in the case of b 54000-2850*10+4500*10=70 500$ would be total expense ... so if the project is 10 years then go for the B because it will have another 10 years of service so that u can be able to work for another 10 more yers if u cant have any projects then u can go to A because the estimated cost is less... but for the safe side better go for B . because if there are any future projects then there wouldnt be any need to buy a new machins

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