+ + Your company wants to buy a new machine and you have received the following quotes: Machine A Machine B Physical life 7 years 10 years First cost $200,000 $350,000 O&M costs $10,000/year + $1.30/unit $20,000/year + $0.51/unit Other costs $6,500/year + $0.95/unit $15,000/year + $0.55/unit Salvage value $5,000 $20,000 The production level can vary from20%. Average production is 50,000 units per year. Your company's MARR is 15% and you wish to use the equivalent annual cost (EAC) to compare both machines. (a) Calculate EAC for both machines and for their physical life, i.e. EACA-(7 years) for machine A and EACB-10 years for machine B. Use the average production level for your calculation. Select the correct EAC for machine A between Part (a) options 1 to 3 and for machine B between Part (a) options 4 to 6. (b) Suppose EACA-17 years, for machine A = $55,000 + costs/unit x production level and EAC3-(10 years) for machine B=$95,000 + costs/unit x production level. Determine, based on a sensitivity analysis, for which machine EAC is more sensitive to the production level. Select the correct option between Part (b) options 1 and 2. (c) The production level is an uncertain parameter. The probability for average production level of 50,000 units is 0.45. The probability for a pessimistic production level (-20%) is 0.25 and the probability for an optimistic production level (+20%) is 0.30. Use a decision tree to determine which one of the 2 machines you should purchase. Suppose the EAC for average, pessimistic and optimistic scenarios in the following table to build your decision tree. Scenario EAC Machine A EAC Machine B Pessimistic $145,000 $135.000 Average $180,000 $160,000 Optimistic $215,000 $180,000 Select the correct expected value (EV) and choice between Part (c) options 1 to 4 below. Part (2) - Option 1, Machine A: EACA = $176,620 = | Part (2) - Option 2, Machine A: EACA = $157,120 Part (a) - Option 3, Machine A: EACA = $152.571 Part (a) - Option 4. Machine B: EAC3 = $122,015 Part (a) - Option 5. Machine B: EAC3 = $103,000 Part (a) - Option 6, Machine B: EACB = $156,753 Part (b) - Option 1: Machine A is more sensitive to the production level Part (b) - Option 2: Machine B is more sensitive to the production level | Part (c) - Option 1: EV=$181.750, select machine A Part (c) - Option 2: EV=$159.750, select machine A Part (c) - Option 3: EV=$181.750, select machine B Part (c) - Option 4: EV=$159,750, select machine B
