The following costs are associated with three tomato-peeling machines being cons

Question

The following costs are associated with three tomato-peeling machines being considered for use in a food canning plant. Machine A Machine B Machine C

First cost $52,000.00 $63,000.00 $67,000.00

Maintenance & Operating Costs 15,000.00 9,000.00 12,000.00

Annual benefits 38,000.00 31,000.00 37,000.00

Salvage Value 13,000.00 19,000.00 22,000.00

Useful life in Years 4 6 12

If the canning company uses a MARR of 12% which is the best alternative? USE NPW to make your decision Note: Consider the least common multiple as the study period.

Explanation / Answer

NPV of Machine A

NPV of Machine B

NPV of Machine C

The machine C has highest Equilvaised NPV. Thus, it shoul be selected.

Year Cash flows PVF Present Value Initial cost 0 -52000 1 -52000 Annual benefits less costs 1 to 4 23000 3.037 69851 Salvage value 3 13000 0.636 8268 NPV 26119 Cumulative PVF 3.037 Equilvaised NPV 8600

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