Question

For th below two machines and based on CC analysis which machine we should select? MARR=10%

	Machine A	Machine B
First cost, $	21,439	124,845
Annual cost, $/year	13,160	7,237
Salvage value, $	5,419	-
Life, years	3	infinite

Answer the below question:

B- the CC for machine B= 

Answer 1

SOLUTION :

r = MARR = 10% = 0.1

=> (1 + r) = 1.1

PV of costs of Machine A :

= 21439 + 13160/ 1.1 + 13160/1.1^2 + 13160/1.1^3 - 5419/1.1^3 

= 50094.60 ($) 

PV of costs of Machine B :

= 124845 + 7237 / 0.1

= 197215 ($) 

Therefore, as per CC, Machine A has lower cost. So Machine A should be selected.

(ANSWER)