Question

In: Economics

Machine X has a first cost of $70,000 and an operating cost of $21,000 in year...

Machine X has a first cost of $70,000 and an operating cost of $21,000 in year 1, increasing by $500 per
year through year 5 with a salvage value of $13,000. Machine Y has a first cost of $62,000 and an operating cost of
$21,000 in year 1, increasing by 3% per year through year 10 with a salvage value of $2000. If the interest rate is
i 13% per year, evaluate which machine must you choose on the basis of:
(a) the present worth analysis,
(b) the conventional B/C analysis

With explanation of Pa , Pc, Ps PW for plan X

Pa ,Ps PW, for plan Y

Delta (C+O) , delta B , Delta B/C

Solutions

Expert Solution

Conventional B/C Ratio = (Benefits - Disbenefits) / (Capital Cost - O&M Cost)

(a) The Present Worth is computed in the excel as under, according to the results, PW of costs is lesser for Machine X, Thus choose Machine X.

(b) The Conventional B/C Ratio is computed in the excel as under, according to the results B/C Ratio of Machine X is greater than 1, Thus choose Machine X.

Workings:

Rahul Sunny answered 7 months ago
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