Question
CBA Inc. has decided to acquire a new Machine. It has three options. M1 : purchase cost of $351,049 and operating costs of $22,949 per
CBA Inc. has decided to acquire a new Machine. It has three options.
M1: purchase cost of $351,049 and operating costs of $22,949 per year (paid at the end of each year).
M2: purchase cost of $284,222 and operating costs of $23,130 per year (paid at the end of each year).
M3: purchase cost of $301,708 and operating costs of $17,504 per year (paid at the end of each year).
Assume that this firm has a budget of $336,300 for this investment and all excavators have a service life of 13 years.
Based on the defender-challenger approach and given that the MARR is 8%, reinvestment rate is 12%, and minimum external rate of return is 9%, compute the incremental Benefit-Cost ratio of choosing the best excavator (in economic terms) and then indicate your recommendation as follows:
- answer 0 if your recommendation is M1;
- answer 1 if your recommendation is M2;
- write down as your answer the value of the incremental B-C ratio if your recommendation is M3.
Round your answer to two decimal places, and do not include spaces, currency signs, plus or minus signs, nor commas.
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