Question

# The following annual costs are associated with three new extruder machines being considered for use in...

The following annual costs are associated with three new extruder machines being considered for use in a Styrofoam cup plant:

 Data X X-TRUD SUPR-X Useful Life, Years 5 13 11 First Cost \$2,300,000 \$2,660,000 \$2,250,000 Salvage Value \$105,000 \$88,000 \$91,000 Annual Benefit \$95,000 \$681,000 \$731,000 M&O \$75,000 \$70,000 \$68,000 M&O Gradient \$11,000 \$15,500 \$13,500

The company's interest rate (MARR) is 21%. Which extruder should the Styrofoam company choose?
Use Annual Cash Flow Analysis and provide the right reason.

The answer choices are:

Choosing SUPR-X is best because it has the highest Annual Benefit

Choosing SUPR-X will maximize the EUAB-EAUC; its value is \$210,610 higher than X and \$83,938 higher than X-TRUD.

Choosing SUPR-X will maximize the EUAB-EAUC; its value is \$853,610 higher than X and \$135,938 higher than X-TRUD.

Choosing SUPR-X is best because it has the lowest M&O cost in yr1

I would rather you show me exactly how to work this problem than just give an answer.

MARR = 21%

We need to find EUAW of all the options

EUAW of X = -2300000*(A/P,21%,5) + 95000 - 75000 - 11000*(A/G,21%,5) + 105000*(A/F,21%,5)

= -2300000*0.341765 + 95000 - 75000 - 11000*1.624635 + 105000*0.131765

= -770095.88

EUAW of X-TRUD = -2660000*(A/P,21%,13) + 681000 - 70000 - 15500*(A/G,21%,13) + 88000*(A/F,21%,13)

= -2660000*0.229234 + 681000 - 70000 - 15500*3.57123 + 88000*0.019234

= -52423.86

EUAW of SUPR-X = -2250000*(A/P,21%,11) + 731000 - 68000 - 13500*(A/G,21%,11) + 91000*(A/F,21%,11)

= -2250000*0.239411 + 731000 - 68000 - 13500*3.221348 + 91000*0.029411

= 83514.25

As EUAW of SUPR-X is highest it should be selected

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