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A company is considering two different types of 125 horsepower motors to operate a large assembly line. The motors are scheduled to be in service
A company is considering two different types of 125 horsepower motors to operate a large assembly line. The motors are scheduled to be in service for 5 useful years, and both will deliver the same operational characteristics for the assembly line. At the end of the fifth year, the equipment will be returned to the manufacturer, with a predetermined salvage value. A nominal interest rate 6% is to be used. Determine the equivalent present value of the lifetime operating cost of each motor, including maintenance, electricity and salvage value, and then determine the cheapest motor. The purchase prices of both motors are equal, so that does not need to be considered. Draw cash flow diagram, show all calculations and factors. (20 points) Motor #1 Maintenance $5,000 first year, decreases $300 per.year. Electricity: $400 per month Salvage value of $800 at end of fifth year Motor#2 Maintenance-Single payment contract, $25,000, payable at end of third year. Electricity: $300 per month Salvage value of $600 at end of fifth year
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