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Q3. (20%) You are considering purchasing a new machine for your company. One of the options, we call it A, has already been analyzed using
Q3. (20%) You are considering purchasing a new machine for your company. One of the options, we call it A, has already been analyzed using your company's minimum acceptable rate of return, 12%. The machine has a six-year life, and the net present worth considering the investment, all costs over the six year period, and the salvage value has been computed. The Net Present Worth of the machine is $20,000. Compare this machine to each of the following alternatives. Except for the salvage values, there is no revenue associated with the alternatives. a. Alternative B has an initial cost of $10,000. The machine vendor covers the operating cost in the first year. The operating cost in the remaining years will be your company's responsibility and is estimated to be $600 in year 2 and to go up by $600 in each year thereafter. Alternative B has a four-year economic life. At the end of the four years, it has a salvage value of $2,000. Which is better, A or B? b. Alternative C has an initial cost of $8,000 and it lasts only two years. It has an operating cost of $1000 per year and its salvage value is zero. Which is better, A or C? Q3. (20%) You are considering purchasing a new machine for your company. One of the options, we call it A, has already been analyzed using your company's minimum acceptable rate of return, 12%. The machine has a six-year life, and the net present worth considering the investment, all costs over the six year period, and the salvage value has been computed. The Net Present Worth of the machine is $20,000. Compare this machine to each of the following alternatives. Except for the salvage values, there is no revenue associated with the alternatives. a. Alternative B has an initial cost of $10,000. The machine vendor covers the operating cost in the first year. The operating cost in the remaining years will be your company's responsibility and is estimated to be $600 in year 2 and to go up by $600 in each year thereafter. Alternative B has a four-year economic life. At the end of the four years, it has a salvage value of $2,000. Which is better, A or B? b. Alternative C has an initial cost of $8,000 and it lasts only two years. It has an operating cost of $1000 per year and its salvage value is zero. Which is better, A or C
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