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A European candy manufacturing plant manager must select a new irradiation system to ensure the safety of specific ingredients, while being economical. The two alternatives available have the following estimates: System -155,000 60,000 3 8 -70,000 20,000 5 CFBT, $ per Year Life, Years The company is in the 35% tax bracket and assumes classical straight line depreciation for alternative comparisons performed at an after-tax minimum acceptable rate of return (MARR) of 8% per year. A salvage value of zero is used when depreciation is calculated: however, system B can be sold after 5 years for an estimated 18% of its first cost. System A has no anticipated salvage value. Determine which is more economical using an annual worth (AW) analysis worked by hand. The annual worth analysis for system A is determined to be $2140 The annual worth analysis for system B is determined to be $2386 System B is selected
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1. Computation of Annual Worth of SystemsAnnual Worth of System A Year First Cost CFBT CFAT @ 65%. Net Cash Flow PVF @8% Present Value $ -1,55,000.00 1.0000 $ -1,55,000.00 $ 60,000.00 39,000.00 $ 39,000.00 0.9259 $ 36,111.11 $ 60,000.00 39,000.00 $ 39,000.00 0.8573 $ 33,436.21 $ 60,000.00 S 39,000.00 $ 39,000.00 0.7938 $ 30,959.46 $ 54,493.22 2.5771 $ 21,145.19 0 $ -1,55,000.00 2 NPV PVAF (8%, 3) Annual Worth Annual Worth of System A CFBT CFAT @ 65%. Net Cash Flow PVF @8% Present Value $ -70,000.00 1.0000$ -70,000.00 $ 20,000.00 13,000.00 $ 13,000.00 0.9259 $ 12,037.04 $ 20,000.00 13,000.00 $ 13,000.00 0.8573 $ 11,145.40 $ 20,000.00 13,000.00 13,000.00 0.7938 $ 10,319.82 $ 20,000.00 13,000.00 13,000.00 0.7350 $ 9,555.39 $ 20,000.00 13,000.00 $ 13,000.00 0.6806 $ 8,847.58 $ -18,094.77 3.9927 $-4,531.95 Year First Cost 0$ -70,000.00 2 4 NPV VAF (8%, 3) Annual Worth

System B should be selected

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