Question

An industrial firm can buy a machine for $ 40,000. A down payment of $ 4,000 is required and the balance can be paid in equal 5-year terms at 7% interest on the unpaid balance. As an alternative, the machine can be purchased for $ 36,000 in cash. If the firm's MARR is 10%, determining the applicant for alternatives must be accepted using the annual equivalency method

** I need the graph of the situation

Answer 1

If purchased on loan then the Price = $ 40,000

Down payment = $ 4,000

Reamining loan amount = $ 36000 at a rate of 7% for 5 years

Installment = $ A

First calculating the Installment

Annual installment = $ 8,780

Present worth of the alternative at a rate of 10%

Now calculating the annual equivalent amount of this alternative

Annual equivalent cost alternative 1 = $ 9,835.26

Now calcualting for alternative 2

Annual equivalent cost of alternative 2 is lower than alternative 1. Hence, select Alternative 2.

Cash flow diagram Alternative 1

Please contact if having any query will be obliged to you for your generous support. Your help mean a lot to me, please help. THank you