I WILL UPVOTE!!!

BACKGROUND: You started to work for company called as an engineer. Your boss asks you to evaluate an investment project which would bring quantified benefits to your company. The project life is estimated as 5 years. The company wants to expand its production line by buying new machines and they have two options to choose from: Machine type A; its purchasing cost is $23,000 and the annual maintenance cost would be $2,500. Every machine A could produce 10,000 units per year. Machine type B; its purchasing cost is $15,000 and the annual maintenance cost would be $2,000 per machine. Every machine B could produce 6,500 units per year. Years: 1 2 3 4 5 Demand: 15,000 16,000 17,000 18,000 19,000 The marketing department forecasted the next five years demand. The forecasted demands are shown in the table. The company defined that the manufacturing team should not produce more than the forecasted demand per year. Assume that you buy the required number of machines at the beginning of the project and dispose them at the end of the project. The company sells a unit produced for $3.2. In addition to that, the cost of raw materials is $0.40 per unit produced. To compute the labor cost, consider that the company pays $14 per hour, and a worker needs 3 minutes to finish one unit of product using Machine type A and 4 minutes using Machine type B. The annual overhead (fixed cost) is $6,000. Additionally, the company expends an installation fee of $2,000 per machine type A and $2,500 per machine type B. These machines would last the company for 10 years and they fall in 7-year MACRS class. You already found a potential buyer for both machines at the end of year 5. The buyers will pay 30% of the purchasing cost per machine as the salvage value. Companys MARR is given as 20% and the tax rate is 24%. Your job is to summarize quantified benefits of this company from this project and file a report.

TASK 1: Make an income statement and a cash flow statement for each alternative using a spreadsheet and show PW and IRR for each project (Machine type A and Machine type B). Which option is the best? Why?