Question
MTU is considering acquiring a new industrial carpet cleaner machine. It has three options. Clean Smart: purchase cost of $332,046 and operating costs of $23,265
MTU is considering acquiring a new industrial carpet cleaner machine. It has three options.
Clean Smart: purchase cost of $332,046 and operating costs of $23,265 in year 1, $29,516 in year 2, and $20,988 in year 3 (paid at the end of each year).
Shining Floor: purchase cost of $236,321 and operating costs of $39,545 in year 1, $35,665 in year 2, and $39,614 in year 3 (paid at the end of each year).
Spring Breeze: purchase cost of $277,074 and operating costs of $22,161 in year 1, $20,706 in year 2, and $20,000 in year 3 (paid at the end of each year).
Assume that MTU has a budget of $322,039 for this investment and all carpet cleaners have a service life of 3 years. Based on the defender-challenger approach and given that the MARR is 9%, reinvestment rate is 7%, and minimum external rate of return is 7%, compute the incremental Benefit-Cost ratio of choosing the best carpet cleaner (in economic terms) and then indicate your recommendation as follows: - answer 0 (without the commas) if your recommendation is the Clean Smart; - answer 1 (without the commas) if your recommendation is the Shining Floor; - write down as your answer the value of the incremental B-C ratio if your recommendation is the Spring Breeze.
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