Question
A company is studying two different production methods to produce its product. Both production methods have the same life and the same maintenance and repair
A company is studying two different production methods to produce its product. Both production methods have the same life and the same maintenance and repair record.
- Production Method 1: costs $120,000 and uses 20 gallons per hours of operation.
- Production Method 2: costs $175,000 and uses 18 gallons per hours of operation at the same level of production.
Both production methods have four-year lives before any major overhaul is required and the 10% of initial its cost as a salvage value. The fuel currently costs $2.40
The fuel consumption is expected to increase 1gallon/hr. every year because of degrading engine efficiency and fuel costs is expected to increase at the rate of 5% per year.
Required:
Assume 5,000 hours of operation per year and a MARR of 12%. Use the AE criterion.
- Summarize the Net Cash Flow of Production Method 1 in table format.
- Summarize the Net Cash Flow of Production Method 2 in table format
Step by Step Solution
There are 3 Steps involved in it
Step: 1
To summarize the net cash flow of Production Method 1 and Production Method 2 we need to calculate t...Get Instant Access to Expert-Tailored Solutions
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Step: 2
Step: 3
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