Question

The machines shown below are under consideration for an improvement to an automated candy bar wrapping process.

	Machine C	Machine D
First cost, $	–50,000	–65,000
Annual cost, $/year	–10,000	–15,000
Salvage value, $	12,000	25,000
Life, years	4	7

1.) Based on the data provided and using an interest rate of 8% per year, the Capital Recovery “CR” of Machine C is closest to:

(All the alternatives presented below were calculated using compound interest factor tables including all decimal places)

1. CR_C = –$17,759
2. CR_C = –$12,433
3. CR_C = –$22,433
4. CR_C = –$11,311

2.) Based on the data provided and using an interest rate of 8% per year, the correct equation to calculate the Annual Worth “AW” of Machine C is:

1. AW_C= –50,000(P/A, 8%, 4) + 12,000(F/A, 8%, 4) –10,000
2. AW_C = –50,000(A/P, 8%, 4) + 25,000(A/F, 8%, 4) –15,000
3. AW_C = –50,000(A/P, 8%, 4) + 12,000(A/F, 8%, 4) –10,000(A/P, 8%, 4)
4. AW_C = –50,000(A/P, 8%, 4) + 12,000(A/F, 8%, 4) –10,000

Answer 1

1.
=-(50000-12000/1.08^4)*8%/(1-1/1.08^4)
=-12432.9906

2.
AWC = –50,000(A/P, 8%, 4) + 12,000(A/F, 8%, 4) –10,000