Question

32 The manager of a canned food processing plant is trying to decide between two labelling machines a) Construct the incremental net cash flow table for each year. b) Determine the number of positive roots for the incremental cash flow. c) Determine the rate of return for the incremental cash flow based on PW analysis. d) Determine which machine should be selected. Use MARR of 20% per year. Please enter your final answers below in addition to uploading your detailed answer to your professor MS Teams after the exam. (25 Points) First Cost $ Annual Operating Cost $ per year Salvage Value $ Machine 1 Machine 2 -15,000 -25,000 -1,600 -400 3,000 4,000 2 4 Life, years

Answer 1

a) Incremental net Cash Flow of using Machine B Year0 1 2 3 4

Incremental First Cost $ (25000-15000) 10000 0     0    0    0

Incremental Annual (400-1600) 0 -1200 -1200 -1200 -1200

Op. Cost $

Incremental Salvage Revenue Year 4=4000-0 = -4000 0 0 3000 0 -4000

Year2=0-3000 = 3000

Net Cash Flow 10000 -1200 1800    -1200 -5200  

d) EUAC of Machine A = -15000-1600(P/A20%,2)+3000(P/F20%,2) = -15000-(1600*1.53)+3000*.69= -13527.77

EUAC of Machine B= -25000-400(P/A20%,4)+4000(P/F20%,4)=-25000-400*2.59+4000*.4822= -19964.5

Since EUAC of MAchine A is smaller , thus, Machine A is preferable.