20 You have two machines under consideration for an improved automated wrapping

Question

20 You have two machines under consideration for an improved automated wrapping process for Snick- ers Fun Size candy bars as detailed below. (a) Using an AW analysis, determine which should be selected at 15% per year. (b) Assume you want machine D to be selected and are wiling to extend its estimated life, if nccessary. Perform this analysis to ensure D's selection using factors or a spreadsheet. Machine First cost,$ Annual cost, S/year Salvage value, $ Life, years -40,000 -10,000 12,000 -65,000 -12,000 25,000

Explanation / Answer

AW ANALYSIS(ANNUAL WORTH ANALYSIS)

IN THIS METHOD ALTERNATIVES ARE COMPARED ON THE BASIS OF EQUIVALENT UNIFORM ANNUAL WORTH

FOR MACHINE C

AW1 = -P(A/P, 15% ,3) + SV(A/F, 15% , 3)

AW1 = -40000(A/P,15%,3) + 12000(A/F,15%,3)

AW1 = -40000*0.4380 + 12000* 0.2880

AW1 = -17520 + 3456

AW1 = -14064

FOR MACHINE D

AW2 = -P(A/P, 15%, 6) + SV( A/F, 15%, 6)

AW2 = -65000(A/P, 15%, 6) + 12000( A/F, 15%,6)

AW2 = -65000*0.2642 + 12000*0.1142

AW2= -17173 + 1370.4

AW2= -15802.6

1)

AS PER THE AW ANALYSIS

MACHINE C SHOWS LOWER NEGATIVE EQUIVALENT

HENCE MACHINE C SHOULD BE SELECTED

2)

MACHINE D SHOWS HIGHER NEGATIVE EQUIVALENT

AW2 = -P(A/P, 15%, 6) + SV( A/F, 15%, 6)

AW2 = -65000(A/P, 15%, 6) + 12000( A/F, 15%,6)

AW2 = -65000*0.2642 + 12000*0.1142

AW2= -17173 + 1370.4

AW2= -15802.6

NOTE FACTORS ARE TAKEN FROM TABLE

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