The government is considering purchasing some excavating equipment. It has a first cost of $68,000, will...

The government is considering purchasing some excavating equipment. It has a first cost of $68,000, will result in annual savings to the public of $20,000 per year, and will be sold for $15,000 at the end of its useful life. The useful life is 4 years, and the MARR is 4%.

a. Determine the benefits to cost (B/C) ratio for this situation. Should the government invest in the excavating equipment?

b. An intern working with the company came across some alternative equipment that has a first cost of $105,000, will result in a savings to the public of $22,000 per year, and will be sold for $20,000 at the end of its useful life, which is 6 years. Using the incremental B/C analysis procedure, and the results from “a”, determine if it’s economically sound for the company to invest in the more expensive equipment at a MARR of 4%.

c. Manually calculate the payback period for these two pieces of equipment. Based on these results, which alternative should be chosen?

d. Did your answers for parts b and c concur? Which method would you recommend to make your decision for this analysis? Why?

Expert Solution

jeff jeffy answered 1 year ago

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