Question

Dexcon Technologies, Inc., is evaluating two alternatives to produce its new plastic filament with tribological (i.e., low friction) properties for creating custom bearings for 3-D printers. The estimates associated with each alternative are shown below. Using a MARR of 11% per year, which alternative has the lower present worth?

Method	DDM	LS
First Cost	$-240,000	$-420,000
M&O Cost, per Year	$-50,000	$-40,000
Salvage Value	$6,000	$17,000
Life	2 years	4 years

The present worth for the DDM method is $_____.

The present worth for the LS method is $_____.

Answer 1

Method	DDM	LS
First Cost	($240,000)	($420,000)
M&O Cost, per Year	($50,000)	($40,000)
Salvage Value	$6,000	$17,000
Life	2 years	4 years

MARR of 11%

The life of both the methods is not equal. Hence, we have to convert the unequal life into equal life by using common multiple method. The common multiple of 2 years and 4 years will be 4.

Therefore, the common life will be 4 years.

Method DDM is to be repeated 2 times.

Method LS is not required to repeat.

The present worth for the DDM method

PW = -$240,000 – $240,000 (P/F, 11%, 2) – 50,000 (P/A, 11%, 4) + $6,000 (P/F, 11%, 2) + $6,000 (P/F, 11%, 4)

PW = -$240,000 – $240,000 (0.8116) – 50,000 (3.1024) + $6,000 (0.8116) + $6,000 (0.6587)

PW = -$581,082.2

The present worth for the LS method

PW = -420,000 – 40,000 (P/A, 11%, 4) + $17,000 (P/F, 11%, 4)

PW = -420,000 – 40,000 (3.1024) + $17,000 (0.6587)

PW = -$532,898.1

Method	DDM	LS
Present Worth	-$581,082.2	-$532,898.1

Alternative LS has the lower present worth.