In the scenario just presented, if MARR = 15%, and assume that after three years (model A) and four years (model B), it costs $6,000 to maintain the equipment and $5,000 to operate it annually for each model.

(b) Calculate the present worths of model A and model B? (20 marks)

(c) Which model should the firm select and why? (5 marks)

Introduction Part a - The ABC Company, a mail-order firm, wants to install an automatic mailing system for handling product announcements and invoices. The firm has a choice between two different types of machines. The two machines are designed differently, but have identical capacities and do exactly the same jobs. The $12,500 semiautomatic model A will last three years, while the fully automatic model B will costs $15.000 and last four vears. The expected cash flows for the two machines, including maintenance, salvage value, and tax effects, are as follows: N(year) Model A -$12.500 -5.000 -5,000 -5,000 + 2,000 Model B -$15,000 -4,000 -4,000 -4.000 -4,000 + 1,500 As business grows to a certain level, neither of the models may be able to handle the expanded volume at the end of year 5. If that happens, a fully computerised mail-order system will need to be installed to handle the increased business volume