Question

Please explain well with numbers why you came to the conclusion.

National Chemicals has an automatic chemical mixture that it has been using for the past 4 years. The mixer originally cost $18,000. Today the mixer can be sold for $10,000. The mixer can be used for 10 years more and will have a $2,500 salvage value at that time. The annual operating and maintenance costs for the mixer equal $6,000/year. Because of an increase in business, a new mixer must be purchased. If the old mixer is retained, a new mixer will be purchased at a cost of $25,000 and have a $4,000 salvage value in 10 years. This new mixer will have annual operating and maintenance costs equal to $5,000/year. The old mixer can be sold and a new mixer of larger capacity purchased for $32,000. This mixer will have a $6,000 salvage value in 10 years and will have annual operating and maintenance costs equal to $8,000/year. Based on a MARR of 15% and using a cash flow approach, what do you recommend?

Answer 1

PONO Answer:- sexapping and Mixey and purchase of larger mibien- cash flows at your o= Initial Investment in larger mixey Strap value of old minex - $32,000 - $10,000 = $82,000 ash cut flows from year 1 to 10 = operating cost - $8,000 Salvage value az yeay 10 = $6,000 Net present value: - Year cash flow XPF) I prf @ 151 (140-15) *=1.00 (140-15)'=0.87 (140-15) 85076 (140-15) =0.66 (140 15" 20.57 | 41+0:15). - 0.50 (22,000) 18,000) (8,000) (8,000) (8,000) 18,000) PV:llashtica (22,000) (6956:52) (6049.15) ( 5860.13) (4574003) (3927140) l- a

9 cash How (8,000) (8,000) (8,000) (8,000) 18,000) pq no ② I puf@151. Ipv-(cashflowx Prey -C140.15)=0-43 (3458:62) (140-157?0.38 (3007.50 ) (HC-15) 8 = 0.33 (2615.21) (14011599= 0.88 (2274.10) (140.15))=0.25 (1977.48). Total = 1 62150115 6000 (17015) -0.25 1483.10 present value of net out flow = 62150:15 -1483.10 = 60667.05 - present value of net out flow = 60667.05 since, cut flow in purchasing lorger mixer was less than old mixer and, nee mixer combination. 50 largey mixer to be replaced and old mixer to be sold i

pgno ② Y 15 NEW M Puychased a id miqcey Retaining www and Le cash flows at year o = Initial Investment in new mixer - $25,000 cash outflows from year I tolo - operating cost of old mizer and New mixer = 6000 + 5000 = $11,000 Salvage value at year 10 = 8500 44000 $6500 (QSh Flogu Net present Value:- year PYF@ 151 (25,000) (140-15° = 120 (113000) (140:15)ʻ=0.87 (11,000) (1 0:1554-0.76 (11,000) (1 +0.15)) = 066 (11,000) . (1 to 15;" = 0.57 (11,000) (170.15552 0:50 (11,000) . (170-1556 - 0.43 (11,00) (1+0:15) 7= 0,38 (1,000) C140:16) 0.33 -C11,000) (1 +0:1659: 0.88 (11,000) Il 10:15 0.25 lao so v oss wro PV trashflowxPV (25,000.00) (9565-22) (8317.58) (7232.68) 16984.24) (5468.44) (475560) (4135131) (3595.92) (3126.89) (9919.03)

Pg NOW Total = 80206:46 (140 15) +0.25 6500 1606.700 present value of net out flow) = 8020646-1606:20 • 78599.75 pyesent value of net out Flow = 78599.75