Question

! Required information An electric switch manufacturing company is trying to decide between three different assembly methods. Method A has an estimated first cost of $35,000, an annual operating cost (AOC) of $6,000, and a service life of 2 years. Method B will cost $78,000 to buy and will have an AOC of $4,500 over its 4-year service life. Method C costs $115,000 initially with an AOC of $7,000 over its 8-year life. Methods A and B will have no salvage value, but Method C will have equipment worth 14% of its first cost. Perform a future worth analysis to select the method at i = 10% per year. The future worth of method A is $ -360660.73 The future worth of method B is $ -445930.90 The future worth of method C is $ -404576.75 Method A is selected.

Answer 1

Method A	Rate{r}	10%
Year	Opening Balance	Amount	Intrest	Closing Balance
{1}	{2}	{3}	({4}=(2+3)*r	{5}=2+3+4
1	-	35,000	3,500	38,500
1	38,500	6,000	4,450	48,950
2	48,950	6,000	5,495	60,445
Method B	Rate	10%
Year	Opening Balance	Amount	Intrest	Closing Balance
1	-	78,000	7,800	85,800
1	85,800	4,500	9,030	99,330
2	99,330	4,500	10,383	114,213
3	114,213	4,500	11,871	130,584
4	130,584	4,500	13,508	148,593
Method C	Rate	10%
Year	Opening Balance	Amount	Intrest	Closing Balance
1	-	115,000	11,500	126,500
1	126,500	7,000	13,350	146,850
2	146,850	7,000	15,385	169,235
3	169,235	7,000	17,624	193,859
4	193,859	7,000	20,086	220,944
5	220,944	7,000	22,794	250,739
6	250,739	7,000	25,774	283,513
7	283,513	7,000	29,051	319,564
8	319,564	7,000	32,656	359,220
8 Salvage Value	359,220	(16,100)		343,120
	Future worth of Method A		60,445
	Future worth of Method B		148,593
	Future worth of Method C		343,120

Notes

1.Its assumed that annual operating cost is incuured at the beginning of each year

2. Its is assumed that the alvage value of method C is rteceived in the 8th year that is future value at the 8th year