Question

Question 7 10 points Save Answer A farm equipment manufacturer is considering two types of controllers for one part of its production facility. Alternative I will have an equipment cost of $ 93,295, an installation cost of $ 35,013, annual M&O costs of $ 9,805, and a $ 7,414 salvage value after 14 years. Altern ative 2 will have an initial cost of $170,000 (including installation), an annual operating cost of $35,000, and $10,000 salvage value after its 8 year life. At an interest rate of 10.6 % per year, the annual worth of the alternatives one is closest to

Answer 1

The machinery with lowest Annual worth should be selected (i.e) Alternative 1

BID D90 Particulars Alternativel Alternatives cost of equipment Installation cost 93, 295 35,013 14 years della 7470,000 / 10A do Tarot De easyears 100 35,000 10,000 Useful life Annual meu costs Salvage value 9,805 7,414 Sipated Interest rate = 10-60% 100T104 Orice 210 of & OT an ETGA Alternativel : (Present value) Year o 1-14 cash flow PUF @ 10.6% Discounted Wrong) 102 Cashflow b 1,28,308 1 11,28,308 000:1 7.1319 W OT 69,929.4A 9,805 pride o (9,809) 0.2440 DOT (7,414) adong PV 1,96,428 Sono ve 21 ADOBE con 14 000. Ef

Annual worth = P.v. action (rtin-1 = 1,96,428 0.106 (1.106)"4 1 (1-106)'4 . 1 = 27,542.28 Alternative-2 (Present Values Year discounted CF Cash Flow PvF @10-6% 1,70.000 61,70,000 5.2204 35,000 (10.000) 0.4466 482, 114 C4,466) 3,48248 PV Annual worth Pj r C179 (1+i)ni = 3,48,248 10.106 € 1.106787 (1 106) 8 1 = 66,709.52. Alternative is less, it should be Since, Annual worth of installed.