Question

Question 6 (10 points)

The machines shown below are under consideration for an improvement to an automated candy bar wrapping process.

	Machine C	Machine D
First cost, $	–50,000	–65,000
Annual cost, $/year	–9,000	–10,000
Salvage value, $	12,000	25,000
Life, years	3	6

(Source: Blank and Tarquin)

Based on the data provided and using an interest rate of 8% per year, the Capital Recovery “CR”of Machine D is closest to:

(All the alternatives presented below were calculated using compound interest factor tables including all decimal places)

Question 6 options:

	CRD= –$12,698
	CRD= –$17,469
	CRD= –$10,653
	CRD= –$14,061

Answer 1

Answer: To calculate capital recovery cost of machinery for Machine D.

We need to estimate the total cost - First cost 65000, plus annual cost 10000 for 6 years and arrive the PV at the rate of 8%.

Difference between the discounted value and original cost comes to CRD $10,653 (Total cost 65000+60000)