You are asked to select the best purchase option: there are two machines. You are only given data on the costs, because the sales will be exactly the same for both alternatives. Therefore, you have to select the equipment that generates the lowest costs! The MARR is 12% annual nominal, compounded annually for both machines.

1. a) Use the truncate method and make a recommendation

2. b) Use the AEC-method and make a recommendation

Compare the equipments P and Q. Use a MARR of 18% annual nominal, compounded annually.

c) Use the repeat method and take a decision. d) Use the AEC-method and take a decision.

Initial investment Annual net cash flows Salvage value Useful life (years) Machine A $62,000 15,000 8,000 4 Machine B $77,000 21,000 10,000 6 Inititial investment Salvage Value Useful life (years) Annual operating costs Special maintenance (end year 2 only) Revenues Equipm. P $29,000 4,000 3 3,000 3,700 10,000 Equipm. Q $37,000 5,000 6 3,500 2,000 12,000