Engineering Economic Analysis (NO EXCEL)

EmKay Industries is considering the following two alternatives for its redesigned production process. MARR is 10% per year compounded annually. The existing equipment is expected to have a salvage value of $24,000 at the end of its useful life of 5 years. O&M costs have been $84,000/yr. Currently the equipment has a market value of $120,000. Alternative 1 (Hybrid Solution) Keep the existing equipment and buy a new semi-automated machine to increase production capacity. This semi-automated machine will cost $180,000, have a salvage value of $24,000 in 5 years, and annual O&M costs are expected to be $36,000. Alternative 2 (Automated Solution) Sell the existing equipment at its market value and purchase a fully automated machine. This new machine will cost $384,000 and is expected to have a salvage value of $60,000 at the end of 5 years. Its annual O&M costs are expected to be $96,000. a) Compute the AW of Alternative 1 for a planning horizon of 5 years. b) Compute the AW of Alternative 2 for a planning horizon of 5 years. c) Based on the AW comparison, what is your recommendation?