Question

Four different machine manufacturers offered for hydraulic profile forming machine to be used in aluminum profile. The following analysis tables have been prepared for the four machines.

Tablel: Offers for new profile formatting machines Profile Formatting Machines M1 M2 M3 M4 Cost of The Machine 24.000 30.400 49.600 52.000 Machine 5 5 5 5 lifecycle(year) Yearly Expense Electricity 2.720 2.720 4.800 5.040 Labor 26.400 24.000 16.800 14.800 Maintenance 1.600 1.800 2.600 2.000 Insurance 480 608 992 1.040

All machines will be scrapped after completing their 5-year life cycle. Since the scrap value of the machines will be a trivial amount, it does not need to be considered in calculations. A return on investment of at least 10 per cent is expected annually. Within the framework of the information given, which machine the profile manufacturer should invest in. State your calculations and reasons.

Answer 1

	m1	m2	m3	m4
cost of machine	24000	30400	49600	52000
Life cycle years	5	5	5	5
Yearly expense
electricity	2720	2720	4800	5040
labor	26400	24000	16800	14800
maintenance	1600	1800	2600	2000
insurance	480	608	992	1040
Total cost in the lifecycle	180000	176040	175560	166400
Benefit	198000	193644	193116	183040

The total cost of a machine in its life cycle of 5 years = 5*(sum of yearly expenses)+cost of machine

ROI = ((Benefits - Costs)/Costs) * 100 = 10

Benefits = 0.1*Costs+Costs= Costs* 1.1

Example:

Total cost in the life cycle of Machine, M1 = 5*(2720+26400+1600+480)+24000 = 180000

Total benefits in its lifecycle = 180000*1.1 = 198000

Similarly, the life time benefits of the rest of the machines are calculated.

Comparing the lifetime benefits of the 5 machines, it is found that M1 has the highest benefit.

Hence, the manufacturer should invest in Machine, M1.