Question

(2.5pts) Monroe Manufacturing owns a warehouse that has been used for storing finished goods for electro-pump products. As the company is phasing out the electro-pump product line, the company is considering modifying the existing structure to use for manufacturing a new product line. Monroe’s product engineer feels that the warehouse could be modified to handle one of two new product lines. The cost and revenue data for the two product alternatives are as follows:

	Product A	Product B
Initial Expenditure
Warehouse Modification	$115,000	$189,000
Equipment	$250,000	$315,000
Annual Revenues	$215,000	$289,000
Annual Operating & Maintenance cost	$126,000	$$168,000
Product life	8 years	8 years
Salvage value	$25,000	$35,000

After eight years, the converted building will be too small for efficient production of either product line. At that time, Monroe plans to use it as a warehouse for storing raw materials as before. Monroe’s MARR is 15%. Compute the Net present worth for each product. Which product should be manufactured?

(2.5pts) A diesel manufacturer is considering the two alternative production machines given the data below: The MAAR for the firm is 8%, calculate the present worth for each alternative for 10year analysis period. Which alternative should be accepted?

Item	Alternative 1	Alternative 2
Initial cost	$50,000	$75,000
Estimated Salvage Value at the end of useful life	$10,000	$12,000
Useful life of equipment (yrs.)	7	13
Estimated Market value at the end of ten years analysis period	$20,000	$15,000

Answer 1