Question

n a 2. ABC Industries manufactures laptops. It has two options to purchase motherboards. Cost and savings estimates are made, but the savings estimate is unreliable at this time. Use an c. AW analysis at 10% per year to determine if the selection between Option A and Option B changes when the savings per year may vary as much as 40% from the best estimates made thus far. First cost, S AOC, $ per year Savings best estimate, S per year Salvage, S Life, years Option A -60,000 -7,500 16,000 4,000 Option B -37,500 -8,000 14,000 3,700

Answer 1

EUAW = EUAB - EUAC

EUAB_{option A} = $ 16,000 + $ 4000 ( A/F , 10% , 5 years)

EUAB_{option A} = $ 16,000 + $ 4000 * 0.163797

EUAB_{option A} = $ 16,655.19

EUAC_{option A} = $ 60,000 ( A/P , 10% , 5 years) + $ 7500

EUAC_{option A} = $ 60,000 * 0.263797 + $ 7500

EUAC_{option A} = $ 23,327.82

EUAW =  $ 16,655.19 - $ 23,327.82

EUAW = - $ 6,672.63

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EUAB_{option B} = $ 14,000 + $ 3700 ( A/F , 10% , 5 years)

EUAB_{option B} = $ 14,000 + $ 3700 * 0.163797

EUAB_{option B} = $ 14,606.05

EUAC_{option B} = $ 37,500 ( A/P , 10% , 5 years) + $ 8000

EUAC_{option B} = $ 37,500 * 0.263797 + $ 8000

EUAC_{option B} = $ 17,892.39

EUAW = $ 14,606.05 -  $ 17,892.39

EUAC_{option B} = - $ 3,286.34

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Thus option B is the best option because its EUAW is greater than that of option A.