Question
I have partial answer need assistance with completing the calculation: You are trying to pick the least-expensive equipment for your manufacturing operations.You have two choices:
I have partial answer need assistance with completing the calculation:
You are trying to pick the least-expensive equipment for your manufacturing operations.You have two choices: the Run-Ever, which will cost $18,000 to purchase and which will have OCF of -$1,000 annually throughout the equipment's expected life of 5 years; and PieceWork, which will cost $10,000 to purchase and which will have OCF of -$1,300 annually throughout that vehicles expected three-year life.Both pieces of equipment will be worthless at the end of their life.If you intend to replace whichever type of equipment you choose with the same thing when its life runs out, again and again out into the foreseeable future.Your business has a cost of capital of 10 percent.One iteration of each delivery equipment will consist of the following cash flows:
Year
0 1 2 3 4 5
Run-Ever CFs -$18,000 -$1,000 -$1,000 -$1,000 -$1,000 -$1,000
PieceWork CFs -$10,000 -$1,300 -$1,300 -$1,300
Calculate the equivalent annuity cost for each piece of equipment.Which one should you choose?
after calculating setting i to 10% (-$14,000/(1.10)0) and so on through year 5, for Run-Ever CFs, I was able to get this far:
-$18,000+-909.09+-$826.45+-$751.3148+-$683.0134+-$620.92= -$21,790.7882
Piece Works CFs:
-$10,000+-$1181.82+-$1074.38+-$979.71=-$13,232.91
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