Question

Dexcon Technologies, Inc., is evaluating two alternatives to produce its new plastic filament with tribological (.e., low friction) properties for creating custom bearings for 3-D printers. The estimates associated with each alternative are shown below. Using a MARR of 20% per year, which alternative has the lower present worth? Method First Cost M&O Cost, per Year Salvage Value Life DDM $-170,000 $-45,000 LS $-410,000 $-15,000 $35,000 4 years $0 2 years The present worth for the DDM method is $ The present worth for the LS method is $ The Click to select) Omethod is selected.

Answer 1

The life of both the alternatives is not equal. Hence, we have to convert the unequal life into equal life by using common multiple method. The common multiple of 2 years and 4 years will be 4.

Therefore, the common life will be 4 years.

Method DDM is to be repeated 2 times.

Method LS is not required to repeat.

MARR = 20%

Method	DDM	LS
First Cost	-170000	-410000
M&O Cost, per Year	-45000	-15000
Salvage Value	0	35000
Life	2 years	4 years

PW of DDM Method

PW = -170,000 – 170,000 (P/F, 20%, 2) – 45,000 (P/A, 20%, 4)

PW = -170,000 – 170,000 (0.69444) – 45,000 (2.58873) = -404,547.65

PW of LS Method

PW = -410,000 – 15,000 (P/A, 20%, 4) + 35,000 (P/F, 20%, 4)

PW = -410,000 – 15,000 (2.58873) + 35,000 (0.48225) = -431,952.2

Method	DDM	LS
PW	-404,547.65	-431,952.2

The Alternative DDM has lowest present worth.

SELECT Alternative DDM because of less present worth.