MARR =5% n=4

1. (6 pts) A business has a choice between two different NC lathes. Type A costs $20,000 and will last for 3 years. However, it requires annual maintenance that will cost $200 every year to operate and maintain (O&M). The O&M is expected to decrease by $20 every year. The other option, Type B is more expensive to buy, $22,000, but has reduced O&M of $100 every year. It is expected to last 3 years also. In addition, it will have to have a major transmission overhaul at the end of year 2, which is estimated to cost $1,000 then. Salvage value of Type A is $7,000 and Type B $8,000 at the end of 3 years. Which is the better option by Annual Worth analysis using an interest rate of i% and by how much? MARR= 5% Type A $8,000 57 000 -$2,000 -S160 -$180 -$200 $12,000 -$20,000 -$22,000 Capex 0&M Salvage Value $8,000 Type B $8.000 -$2,000 1 -$100 -$100 $100 $1,000 -$12,000 -$22,000 -$22,000 Capex O&M Overhaul Salvage Value 3. (6 pts) A major piece of your company's manufacturing equipment has failed, and you need to buy a replacement. There are three alternatives. Which one should be selected based on rate of return analysis if the company MARR is 10%? You only need to buy one. Vera B C hitialCost $ (100 000 $ (120000) $ (130 000) AnnualBenefit $ 40 000 $ 32 000 $ 50 000 Salvage Value $ 30 000 $ 20000 $ 20 000 Life Cyrs) 3 6 6 ROR 12% 9% 12 50% 6. (2 pts) Describe the strategic approach you would take to transform the data when presented with a cash flow table that includes multiple sign changes. Bonus: (1 pt) In a fixed output situation and performing a Benefit-to-Cost ratio analysis, we want to... a) ... minimize our input. b) maximize our input. c) increase the interest rate. d) use simple interest. e) ... none of the above