Question

Only b) in Excel please

Modern Designs is seeking to buy a new wire binding machine in order to improve the throughput of the system. Considerable research into machine suppliers has been conducted, and all except four suppliers have been eliminated from consideration. These include: Beauty Copper (BC), Copper Cut (CC), Advanced Wire (AW), and Wire Cosmetics (WC). The initial cost, maintenance cost and salvage value at year 10 of each machine are illustrated in the following table. i= 1%

	BC	CC	AW	WC
Initial Cost	$ 150,000	$ 43708	$ 140,000	$ 4370 8
Maintenance Cost	$ 2150	$ 4100	$ 3800	$ 8000
Salvage value	$ 50,000	$ 35,000	$ 39,000	$ 15,000

a) Calculate the present value of each machine and determine the best economic alternative

b) In addition to economic value of each machine with the weight of 25%, Modern Designs has identified other factors. Each of the factors has been weighted in terms of its importance. Factors and weights are as follows:

Factor 1: Electricity Consumption Rate 20%

Factor 2: Machine Capacity 15%

Factor 3: Safety Features 15%

Factor 4: Delivery and Installation 10%

Factor 5: Return Policy 5%; and

Factor 6: Ease of Working with 10%.

The procurement department has researched and provided ratings on a 10-point maximum scale for each factor. These are given in the following table:

Supplier	Factor 1	Factor 2	Factor 3	Factor 4	Factor 5	Factor 6
BC	9.2	10	9	6	8	10
CC	10.0	7	7	5	9	7
AW	6.7	8	10	7	6	8
WC	8.2	6	7	10	10	9

Use the weighted factor comparison method to determine the score for each of the potential machines.    

What is the imputed value, in dollars, for the differences in Electricity Consumption Rate, and Return policy between machines BC and CC?

Answer 1

Present value = CF₁/(1+i)¹+CF₂/(1+i)²+CF₃/(1+i)³+CF₄/(1+i)⁴+CF₅/(1+i)⁵+CF₆/(1+i)⁶+CF₇/(1+i)⁷+CF₈/(1+i)⁸+CF₉/(1+i)⁹+CF₁₀/(1+i)¹⁰+CF₁₁/(1+i)¹¹-Initial Investment

BC = -2150/1.01-2150/1.01^2-2150/1.01^3-2150/1.01^4-2150/1.01^5-2150/1.01^6-2150/1.01^7-2150/1.01^8-2150/1.01^9-2150/1.01^10+50000/1.01^11 -150000 = -125547

CC = -4100/1.01-4100/1.01^2-4100/1.01^3-4100/1.01^4-4100/1.01^5-4100/1.01^6-4100/1.01^7-4100/1.01^8-4100/1.01^9-4100/1.01^10+35000/1.01^11 -43708 = -51169

AW=-3800/1.01-3800/1.01^2-3800/1.01^3-3800/1.01^4-3800/1.01^5-3800/1.01^6-3800/1.01^7-3800/1.01^8-3800/1.01^9-3800/1.01^10+39000/1.01^11 -140000 = -141034

WC=-8000/1.01-8000/1.01^2-8000/1.01^3-8000/1.01^4-8000/1.01^5-8000/1.01^6-8000/1.01^7-8000/1.01^8-8000/1.01^9-8000/1.01^10+15000/1.01^11 -43708 = -106167

CC is more feasible as it has highest NPV among the four

Based on above value , we assign a 10 point ot CC on economic value factor, 9 to WC, 8 to BC and 7 to AW

BC = 20%*9.2+15%*10+15%*9+10%*6+5%*8+10%*10+25%*8=8.69

CC = 20%*10+15%*7+15%*7+10%*5+5%*9+10%*7+25%*10=8.25

AW = 20%*6.7+15%*8+15%*10+10%*7+5%*6+10%*8+25%*7=7.59

WC = 20%*8.2+15%*6+15%*7+10%*10+5%*10+10%*9+25%*9=8.24