Question

Flo's Frozen Yogurt shop is evaluating new dispensing machines. The Flownator has a first cost of $30,896 and annual expenses of $9,058 that will increase by $578 per year. It will require an overhaul at the end of year 4 at a cost of $5,328. The Flownator will save $19,315 per year in labor costs. The Flownator has a salvage value of $8,304 and a lifespan of 11 years. The YogGoo300O has a first cost of $21,166 and annual expenses of $3,671 that will increase by 4% per year. The YogGoo300 will save Flo's $10,876 per year in labor costs. The YogGoo300 has a lifespan of 5 years. What must the salvage value of the YogGoo30 be to make it equally desirable to the Flownator? Use a MARR of 4% to make your calculation. Enter your answer as follows: 12345 Round your answer. Do not use a dollar sign ("$"), any commas (""), or a decimal point ("").

Answer 1

	IRR Calculation of The Flownator
	Cash Outflow							-30896
	Inflow			Outflow
			Total	Regular	Overhauling	Total	Net Cash flow
1	19,315		19,315	9,058		9,058	10,257	10,257
2	19,315		19,315	9,636		9,636	9,679	9,679
3	19,315		19,315	10,214		10,214	9,101	9,101
4	19,315		19,315	10,792	5,328	16,120	3,195	3,195
5	19,315		19,315	11,370		11,370	7,945	7,945
6	19,315		19,315	11,948		11,948	7,367	7,367
7	19,315		19,315	12,526		12,526	6,789	6,789
8	19,315		19,315	13,104		13,104	6,211	6,211
9	19,315		19,315	13,682		13,682	5,633	5,633
10	19,315		19,315	14,260		14,260	5,055	5,055
11	19,315	8,304	27,619	14,838		14,838	12,781	12,781
							IRR	23.73%
	IRR Calculation of YogGoo300
	Cash outflow							-21166
	Inflow			Outflow
			Total	Regular	Overhauling	Total	Net Cash flow
1	10876		10876	3671		3671	7205	7205
2	10876		10876	3818		3818	7058	7058
3	10876		10876	3971		3971	6905	6905
4	10876		10876	4129		4129	6747	6747
5	10876	5625	16501	4295		4295	12206	12206
							IRR	23.73%
	As IRR of both the machines is 23.73% in case salvage value of YogGoo is $5625 . Hence, The slavage value of the YogGoo300 should be 5625 to be comparable to The Flownator