Question

ENGR 2308- Engineering Economy HOMEWORK 5 DUE TUESDAY NOVEMBER 5TH, 2019 Name: Solve the following problems. Show all your work to receive credit. 1. Ashley Foods, Inc. has determined that any one of five machines can be used in one phase of its chili canning operation. The costs of the machines are estimated below, and all machines are estimated to have a 4-year useful life. If the minimum attractive rate of return is 20% per year, determine which machine should be selected on the basis of a rate of return analysis. (Use Excel) Machine First Cost, $ -31.000 - 29,000 - 34,500 -49,000 -41,000 Annual Operating Cost, $ per Year - 16,000 -19,300 -17.000 - 12,200 -15,500

Answer 1

14 A B 86 Year Machine 2 870 -29000 881 -19300 89 2 -19300 90 3 -19300 91 4 -19300 92 " C D E F Machine 1 Machine 3 Machine 5 Machine 4 -31000 -34500 - 41000 - 49000 -16000 -17000 -15500 -12200 -16000 -17000 -13500 -12200 -16000 -17000 -15500 -12200 -16000 -17000 -15500 -12200 1- 213- 115- 114-11 I=C87-B87 =D87-C87 =E87C87 =F87-C87 =C88-B88 =D88-C88 =E88-C88 =F88-C88 -C89-B89 -D89-C89 E 89-C89 -F89-C89 =C90-B90 1=D90-C90 E90-C90 =F90-C90 -C91-B91 =D91-C91 E91-C91 =F91-C91 EIRR(G87 G91) Nan IRR(187-191) IRR(187191)

5-17 Year Mactive 2 Machine 1 Martine 3 Martine 5 Machine 4 -29 31030 -34500 41000 490 -19300 -1600 -17000 -15500 -12200 -19300 -1620 -17000 -15500 -12200 3. -19300 -16400 -17000 -15500 -12200 -19303 -16100 -17000 -15500 -12200 1-2 3-1 -2000 -3500 3300 -1000 3300 -1013 3300 -1000 3300 -1039 161% Nan -10% 500 500 500 500 43% 41 -1800 3800 3803 3803 3800 -6%

Only one machine will be selected because of they are mutually exclusive to each other.

It will be decided by the incremental ROR between 1 & 2. As, it is 161% which is higher than MARR of 20%, machine with higher initial cost will be selected. (Machine 1)

Incremental ROR is not applicable between 1 & 3. So, the machine with less initial cost will be selected (Machine 1)

For 1 & 4, its negative. So again machine with lower initial cost will be selected. (Machine 1)

For 1 & 5, its negative. So again machine with lower initial cost will be selected. (Machine 1)

So, Machine 1 is the optimum choice.