About Engineering Economy

A company plans to buy a food processing machine for its business expansion plan.

There are 2 alternative money that can be used as a reference, namely:

- Machines that work automatically

- Machines that work manually

To be able to produce the same production capacity, the company can use 1 automatic machine, or 2 manual machines.

The price of a manual machine is Rp. 365m, with a technical life of 20 years, and an estimated final value of 50m. The operating and maintenance costs are around Rp. 50 million every year.

And every 5 years an overhaul must be carried out at a cost of around Rp. 30 million. The operator's salary is estimated at Rp 80 million per year.

While the automatic machine costs Rp. 900 million., with a technical life of 20 years, and is estimated to have a final value of Rp. 60 million.

The operating and maintenance costs are estimated at Rp.35 million. And every 5 years an overhaul must be carried out at a cost of around 60 million. The operator's salary is estimated at Rp.120 million every year.

The automatic machine must be equipped with a controller which costs Rp. 300 million, technical life of 10 years, and the final value is Rp. 25 million with a maintenance fee of Rp. 10 million per year.

The additional tax that must be paid when using an automatic machine is Rp.28.5 million per year.

Question :

Using the present value method and based on these conditions, which machine should management choose for business expansion, if the interest rate is 8% per annum?