Question

compare after 12 years

ENGR 1110 Comparing Economic Alternatives Two machines are being considered for the same task. Machine A costs $18,000 new and is estimated to last 6 years. The cost to replace machine A after 6 years will be $23,000. Machine A will cost $1,200 per year to operate/maintain and it will have a trade-in (salvage) value of $1,500. Machine B costs $38,000 to buy, will last 12 years and will have a trade in value of $2,000. The cost of operation and maintenance for machine B is $700 per year. Compare the two machines on a present worth basis and state which machine will be cheaper and by how much. Include a cash flow diagram for each option. Assume that all interest rates are 8% per year compounded monthly

Answer 1

Given that ar too lateria A machines we cost CA) = 18000 estimated 6 year cost oe place machine A - affron Gyear. = 23,000 machine from above condusion that machine "B. present worth cash at flous associated withis greater the machin. "A" => Present worth of machine "Amin.. Real amount Interest Rate = uq. [Nominal rate inflation] jale = 89. -4% 6 years - use full life the machine : NPER Annual operating expense = 1200 saving value at end of we full fr - 1500 Present worth of 1200 5, 105.09 Add intal cost of the 18000.00 machine . 13:10509 1500

- Type = o. implies that the annual Pmt - 1200 Hv = 1500 cash flow diagram $300 (-81,2005 1500) -$ 18,000 $1200 $1200 $13200 $1200 $1,200 $1,20 Yebon-1 yea91-2 yecol-3 year-4 year 5 year-6 Year-o Present worth of the machine B Nominal Annual Rate "8% NPCR = 12 year PMT 57000 Fu 2000 present worth of future = 4,481,03 38000.00 42,481.03 Present worth is associated with machine "B".

rate = 87. пред = 18 pont = 700 fv = 2000 type = o implies that ryh flow diagram the annual depositing C700+38000) $300 3800 700 700 700 700 700 yearo Yeart Year 2 year3 yeary years-1) year 12