Question

In: Economics

Dunn Manufacturing is considering the following two alternatives. The cost information for the two proposals for...

Dunn Manufacturing is considering the following two alternatives. The cost information for the two proposals for replacing an equipment are provided are in table below.

Machine X

Machine Y

Initial cost

$120,000

$96,000

Benefits/year

$20,000 for the first 10 years

and $9,000 for the next 10

years

$12,000 per year for 20 years.

Life

20 years

Salvage value

$40,000

$20,000

MARR

8%

Reference: Case Study 5

The NPW of machine Y is ________________.

	A.	$29,508
	B.	$32,103
	C.	$26,106
	D.	$42,196

Expert Solution

Answer is C. $ 26,106

The explanation is as follows:

Present value of benefits for 20 years ($12,000 *Annuity factor @8% i.e. 9.818): $ 117,816

Add: Present value off salvage value ($20,000*Present value factor for 20th year i.e. 0.2145): $4,290

Less: Initial Investment: $96,000

Net present worth of Machine Y: $26,106

Rahul Sunny answered 2 years ago

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