Question

Beijing Personality Ltd. makes plastic figures of celebrities. They are considering four mold alternatives for the popular Fabian figure. The TripleA cavity mold costs $6000 to make and $2500 per year for production. The Triple B cavity mold costs $6600 to make and $2100 per year for production. The Double cavity mold costs $3200 to make and $3700 per year for production. They can make 2 Single cavity molds costing $850 each to make, with $4900 total production cost per year. Each mold has $400 salvage value. What mold should be used if the MARR is 30% per year, using ROR analysis and a 4 year planning horizon?

Answer 1

	Equivalent Cost (Triple A)
	Year	Cash inflows	cash outflows	net cash flows	PVF@30%	Present value
		(A)	(B)	(A+B)=C	D	(C*D)=E
	0	$0	$6000	$6000	1	$6000
	1	$0	$2500	$2500	0.769231	$1923.08
	2	$0	$2500	$2500	0.591716	$1479.29
	3	$0	$2500	$2500	0.455166	$1137.92
	4	$0	$2100	$2100	0.350128	$735.27
			(2500-400)
					NPV (F)	$11275.55
					PVAF(30%,4) (G)	2.166241
					Equivalent cost (F/G)=H	$5205.124
	Equivalent Cost (Triple B)
	Year	Cash inflows	cash outflows	net cash flows	PVF@30%	Present value
		(A)	(B)	(A+B)=C	D	(C*D)=E
	0	$0	$6600	$6600	1	$6600
	1	$0	$2100	$2100	0.769231	$1615.39
	2	$0	$2100	$2100	0.591716	$1242.60
	3	$0	$2100	$2100	0.455166	$955.85
	4	$0	$1700	$1700	0.350128	$595.22
			(2100-400)
					NPV (F)	$11009.05
					PVAF(30%,4) (G)	2.166241
					Equivalent cost (F/G)=H	$5082.101
	Equivalent Cost (Double cavity)
	Year	Cash inflows	cash outflows	net cash flows	PVF@30%	Present value
		(A)	(B)	(A+B)=C	D	(C*D)=E
	0	$0	$3200	$3200	1	$3200
	1	$0	$3700	$3700	0.769231	$2846.154
	2	$0	$3700	$3700	0.591716	$2819.349
	3	$0	$3700	$3700	0.455166	$1684.115
	4	$0	$3300	$3300	0.350128	$1155.422
			(3700-400)
					NPV (F)	$11075.04
					PVAF(30%,4) (G)	2.166241
					Equivalent cost (F/G)=H	$5112.56
	Equivalent Cost (2 single cavity)
	Year	Cash inflows	cash outflows	net cash flows	PVF@30%	Present value
		(A)	(B)	(A+B)=C	D	(C*D)=E
	0	$0	$1700	$1700	1	$1700
			(850*2)
	1	$0	$4900	$4900	0.769231	$3769.231
	2	$0	$4900	$4900	0.591716	$2899.408
	3	$0	$4900	$4900	0.455166	$2230.314
	4	$0	$4100	$4100	0.350128	$1435.524
			(4900-(400*2))
					NPV (F)	$12034.48
					PVAF(30%,4) (G)	2.166241
					Equivalent cost (F/G)=H	$5555.466
	Triple B is recommend because they have least equivalent cost