Q13.3 Two machines are being considered for a manufacturing process. Machine A h

Question

Q13.3

Two machines are being considered for a manufacturing process. Machine A has a first cost of $75,200 and its salvage value at the end of six years of estimated service life is $21,000. The estimated operating costs of this machine are $6,800 per year. Extra income taxes are estimated to be $2,400 per year. Machine B has a first cost of $44,000 and its salvage value at the end of six years of service is estimated to be negligible. The annual operating costs will be $11,500.  What is the difference in the NPW of Machine B - Machine A if MARR = 13%? (Please show work)(Use excel if possible)

-$11,919

$11,919

-$9,056

$9,056

a.

-$11,919

b.

$11,919

c.

-$9,056

d.

$9,056

Explanation / Answer

Ans is a.) -$ 11,919

A Year Cash OutflowsFlows PVF@ 13 % PV 0 -75200 1 -75200 1 -9200 0.885 -8142 2 -9200 0.783 -7205 3 -9200 0.693 -6376 4 -9200 0.613 -5643 5 -9200 0.543 -4993 6 -9200 0.480 -4419 6 21000 0.480 10087 NPV -101891 B Year Cash OutflowsFlows PVF@ 13 % PV 0 -44000 1 -44000 1 -11500 0.885 -10177 2 -11500 0.783 -9006 3 -11500 0.693 -7970 4 -11500 0.613 -7053 5 -11500 0.543 -6242 6 -11500 0.480 -5524 6 0 0.480 0 NPV -89972 Difference in NPV -11919

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