Question

In: Finance

) A company wants to purchase a new machine. There two options Machine A and Machine...

  1. ) A company wants to purchase a new machine. There two options Machine A and Machine B. The first costs of A and B are $9000 and $11,000 respectively. Machine A has net annual benefits of $1800 for the first year and will increase by $150 every year during its five year useful life, and the salvage value is $600. Machine B has net annual benefits of $3200 but will decrease by $150 every year during during each year of its four year useful life, and the salvage value is $1500. If the MARR is 12%, which machine should be selected?

Solutions

Expert Solution

IF there is an option, reject both since both have negative equivalent annual benefit. However if one has to be selected, select B since it has a higher Equivalent benefit.

Year A B
0 -9000 -11000
1 1800 3200
2 1950 3050
3 2100 2900
4 2250 4250
5 3000
NPV -1211.39 -946.30
EUAB ($336.05) ($311.55)


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