10. 6.36 Old Southwest Canning Co. has determined that any one of four sterilizing machines can be used in its chili-canning operation. The costs of the machines are estimated; all machines have a 5-year useful life.

(a) If the MARR is 25% per year, determine which machine should be selected on the basis of an ROR analysis.

(b) (Spreadsheet exercises) Develop a spreadsheet similar to Figure 6.11 to select one alternative.

(c) There is a controversy about the MARR in this selection between yourself and the capital investment officer. You want 15%, not 25%, since the equipment’s sterilization ability selected at MARR of 25% does not have excellent quality, as tests have shown. Use your spreadsheet to determine if the selection will change at 15% from the previous choice. (Note: If your instructor asks for it, apply the logical IF function to make the determination if a machine is incrementally justified for the two MARR values. Refer to Appendix A for help on developing the IF function.)Page 190 Table Summary: Table divided into 3 columns with the headings marked as: Machine;
First Cost in dollars; and AOC in dollars.
Machine First Cost, $ AOC, $
1 −28,000 −20,000 2 −51,000 −12,000 3 −32,000 −19,000 4 −33,000 −18,000