Question

Two laser machines (A & B) used in eye’s surgeries are being compared to choose one of them for a medical center specialized in eye’s treatments. The price of machine A is 1,200,000 Dhs and requires an annual maintenance of 100,000 Dhs, while the price of machine B is 1,000,000 Dhs and requires an annual maintenance of 120,000 Dhs. The expected life time for both machines is 8 years after which the two machines salvage values will be 150,000 Dhs for machine A and 125,000 Dhs for machine B. The MARR decided by the medical center administration is 9% per year.

Perform a future worth analysis to decide which machine is better to be bought by the medical center.

Answer 1

Machine A -

Calculate the future worth of Machine A -

Future Worth = -Price of machine(F/P, i, n) -Annual maintenance(F/A, i, n) + salvage value

Future Worth = -1,200,000(F/P, 9%, 8) - 100,000(F/A, 9%, 8) + 150,000

Future Worth = [-1,200,000 * 1.9926] - [100,000 * 11.0285] + 150,000

Future Worth = -2,391,120 - 1,102,850 + 150,000

Future Worth = -3,343,970

The Future Worth of Machine A is -3,343,970 Dhs.

Machine B -

Calculate the future worth of Machine B -

Future Worth = -Price of machine(F/P, i, n) -Annual maintenance(F/A, i, n) + salvage value

Future Worth = -1,000,000(F/P, 9%, 8) - 120,000(F/A, 9%, 8) + 125,000

Future Worth = [-1,000,000 * 1.9926] - [120,000 * 11.0285] + 125,000

Future Worth = -1,992,600 - 1,323,420 + 125,000

Future Worth = -3,191,020

The Future Worth of Machine B is -3,191,020 Dhs.

The future worth of Machine B is numerically higher.

Thus,

Based on the future worth analysis, Machine B is better to be bought by the medical center.