A bank is trying to determine which of two machines should be rented to process

Question

A bank is trying to determine which of two machines should be rented to process checks. Machine 1 rents for $10,000 per year and processes 1,000 checks per hour. Machine 2 rents for $15,000 per year and processes 1,600 checks per hour. Assume that the machines work 8 hours a day, 5 days a week, 50 weeks a year. The bank must process an average of 800 checks per hour, and the average check processed is for $100. Assume an annual interest rate of 20%. Then determine the cost to the bank (in lost interest) for each hour that a check spends waiting for and undergoing processing. Assuming that interarrival times and service times are exponential, which machine should the bank rent?

Explanation / Answer

Particulars Machine 1 Machine 2 Rent 10000 15000 No. Of checks processed per hour 1000 1600 No.of working hours in a year 2000 2000 Total no.of checks processed 2000000 3200000 Average check processed 100 100 Total Value 200000000 320000000 Annual interest rate 20% 20%

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