Question
10. Two machines are under consideration for a new production line. Machine X costs $50,000 and is expected to have a salvage value of
10. Two machines are under consideration for a new production line. Machine X costs $50,000 and is expected to have a salvage value of $6,500 at the end of its useful life of 5 years. It will have a fixed cost of $16,000 per year and a variable cost of $55 per unit per year. On the other hand, machine Y costs $55,000 and is expected to have a salvage value of $7,000 at the end of its useful life of 7 years. It will have a fixed cost of $14,500 per year and a variable cost of $58 per unit per year. Determine the quantity that must be produced for the two machines to break even at an interest rate of 3% per year. If your answer contains a fractional value, round up to the next whole number. (See chapter 11 of textbook) Hint: Note that Alternative X and Alternative Y have unequal lives, but they can still be compared on. the basis of annual worth, using appropriate "A given P" and "A given F" factors for their respective lives. H Alternative Installed cost Fixed cost per year Variable cost per year Salvage value Useful life X $50,000 $16,000 $55 per unit $6,500 5 years Y $55,000 $14,500 $58 per unit $7,000 7 years
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