Question

Two ventilation systems suppliers, Supplier A will have an initial cost of 1600000$, and its operating cost is 70000 $ per year, where its life is 4 year with salvage value of 400000 $. Supplier B has an initial cost of 2100000 $ and operating cost of 50000 $ at the first year with an increase of $3000 per year thereafter, and its useful life is 8 years with no salvage value.

Use the future worth analysis to determine which system should be selected, the interest rate is 12% per year?

Answer 1

Ans:-

Supplier A:-

Future worth analysis= -1600000(F/P 12% 4 years) - $70000(F/A 12% 4 years) +400000

= -1600000(1.574) - $70000(4.779) + 400000

= -2518400- 334530 + 400000

=$ -2452930

Supplier B:-

= -2100000(F/p 12% 8 years) - 50000(2.2107) - 53000(1.9738) - 56000( 1.7623) - 59000( 1.5735) - 62000 ( 1.4049) - 65000( 1.2544) - 68000( 1.12) - 71000

= -5199600- 110535 - 104611.4 - 98688.8 - 92836.5 - 87103.8 - 81536 - 76160 - 71000

= $-5922072

here amount of future worth is in nagative. so we should accept the supplier which have minimum amount. so here amount of future worth of supplies B is greater than Supplier A so we should accept supplier A.