Problem1. The following costs and useful life data are associated with two new m

Question

Problem1. The following costs and useful life data are associated with two new machines being considered at Arun Tech Inc Data Useful Life, Years First Cost Salvage Value Annual Benefit Annual Benefit, Gradient Maintenance & Alt. B 19 Alt. A $250,000 S460.000 $13,000 S26,000 $92,000 S103.000 $ 1,250-s2. 100 $16,000 S18,000 ing Costs The company interest rate (MARR) is 12%. Conduct economic analysis using either present worth or annual cash flow methods and recommend which machine should be purchased. A. Construct cash flows diagram for Alternative A and B Using the present worth analysis method, determine the net present worth (NPW= PWB-PWC) of alternative A, & B. and recommend the most economical alternative B. C. Using the equivalent uniform annual cash flow method, determine the equivalent uniform annual worth (EUAW = EUAB EUAC) of alternative A and B; and select the most economical alternative

Explanation / Answer

Option A:

First cost = 250,000

Annual Net savings (92,000-1250=90,750)(P/A,12%,11) = 539,055

Scheduled Maintenance 16,000 (P/F,12%.11) = 158,080

Salavge value 13,000 (P/F,12%,11) = 128,440

Total = $259,415

Option B:

First cost = 460,000

Annual Net savings (103,000-2100=100,900)(P/A,12%,19) = 743,230

Scheduled Maintenance 18,000 (P/F,12%.19) = 321,840

Salavge value 26,000 (P/F,12%,19) = 464,880

Total = $426,270

Option B is better because its have higher cash flows.

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