Question

Cupid's Confections is interested in buying a new manufacturing system to help the company keep up with demand. The company has received bids for two different systems: Candylicious Mighty Delighty $85,977 $14,255 $10,454 $121,834 $25,251 $10,630 First Cost Salvage Value Annual Utilities Number of additional employees needed Number of additional pieces of candy that can be processed per month Lifespan 11,760 39,333 6 years 9 years The company pays its employees an average salary of $47,783 per year. The company makes a profit of $1.07 per piece of candy (assume all additional candy produced would be sold). Comparing the two alternatives using present worth analysis (see the video lecture "Multiple Projects - Unequal Life" if you are unsure what that means), what is the present worth of the Mighty Delighty? Use an interest rate of 2% compounded annually to make your calculation. NOTE: • You only need to calculate the present worth of the Mighty Delighty for this problem. You do not need to calculate the present worth for the Candylicious. You do need to know the lifespan of the Candylicious to make an accurate calculation • The number of pieces of candy is per month • If you are taking this quiz again, be sure you are making the calculation for the correct machine. Enter your answer as 1234 Round your answer. Do not use a dollar sign ("$"), any commas (".") or a decimal point (":").

Answer 1

When comparing projects with unequal lives, we compute NPW for LCM of projects being compared

LCM of 6 & 9 is 18

NPW of mighty delighty = -85977 - (85977 - 14255) *(P/F, 2%,6) - (85977 - 14255) *(P/F, 2%,12) + 14255 *(P/F, 2%,18) - 10454 * (P/A, 2%,18) - 4 * 47783 *(P/A, 2%,18) + 11760 * 1.07 * 12 *( P/A, 2%,18)

= -85977 - 71722 *(P/F, 2%,6) - 71722*(P/F, 2%,12) + 14255 *(P/F, 2%,18) - 10454 * (P/A, 2%,18) - 191132 *(P/A, 2%,18) + 150998.40 *( P/A, 2%,18)

= -85977 - 71722 *0.887971 - 71722*0.788493 + 14255 *0.700159 - 10454 *14.992031 - 191132 *14.992031 + 150998.40 *14.992031

= -954646.45 ~ -954646