A construction company called Alians Group is considering buying new machinery for one of its projects.A 10% interest rate will be used in the computations. Two models of the machine are available.

Machine I

Initial cost:$80,000

End -of -useful –life Salvage value, S: 20,000

Annual operating cost 18,000

Useful life, in years 20

Machine II

Initial cost: $100,000

End -of -useful –life Salvage value, S: 25,000

Annual operating cost: 15,000 first 10 years, 20,000 thereafter

Useful life, in years: 25

Required:

(a) Determine which machine should be purchased, based on equivalent uniform annual cost.

(b) What is the capitalized cost of Machine I?

(c) Machine I is purchased and a fund is set up to replace Machine i at the end of 20 years. Compute the required uniform annual deposit.

(d) Machine I will produce an annual saving of material of $28,000. What is the rate of return if Machine I is installed?