Dexcon Technologies, Inc, is evaluating two alternatives to produce its new plas

Question

Dexcon Technologies, Inc, is evaluating two alternatives to produce its new plastic filament with tribological (i.e, low friction) properties for creating custom bearings for 3-D printers. The estimates associated with each alternative are shown below. Using a MARR of 16% per year, which alternative has the lower present worth? ethod rst Cost &O Cost, per Year DDM LS -130,000S470,000 $-30,000 S27,000 4 years Salvage Value The present worth for the DDM method is s 24741974 The present worth for the LS method is $ 539033 56 o The [DDM O method is selected.

Explanation / Answer

The life of first project is 2 year and the life of second project is 4 years.

Lets consider the above two alternatives-

First we take second alternative i.e. LS

First We need to find out Present Value =

= - 4,70,000 - $30,000 * PVAF (16%, 4year) + $27,000 * PVF (16%, 4year)

= -4,70,000 - $30,000 * 2.798 + $27,000 * 0.552

= -$4,70,000 - $83,945.42 + $14,911.86

= -$5,39,033.56

Then, we consider the Alternative 1 i.e. DDM, in that product we again repeat the cycle to make decision comparable.

First We need to find out Present Value =

Then,

Present Value = -1,35,000 - 75,000 / (1 + 0.16)1 -  2,01,000 / (1 + 0.16)2 - 75,000 / (1 + 0.16)3 - 71,000 / (1 + 0.16)4

= -$1,35,000 - $75,000 * 0.862 - $2,01,000 * 0.743 - $75,000 * 0.641 - $71,000 * 0.552

= -$1,35,000 - $64,655.17 - $1,49,375.74 - $48,049.33 - $39,212.67

= -$4,36,292.91

Hence, Project 1st is lowest present value of expenditiure so we can accept the project 1st.

Thanks

Cash Flow Year Amount 0 -130000 -130000 1 -75000 -75000 2 -75000 4000 -130000 -201000 3 -75000 -75000 4 4000 -75000 -71000

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