A company is considering purchasing either machine A or B, given that MARR is 10%, and the company projected sales is 40,000 units. Machine A Machine B $90,000 $39,000 $1100 +.02xunits $600 +0.03xunits Initial cost $70,000 $40,000 $1000+0.03xunit $500+0.05xunit 8 years $15,000 Annual revenues Annual Operation cost Annual Maintenance cost Life span 6 years Salvage value $10,000 Draw the cash flow diagram for each machine. a. b. Compute ERR for each machine, based on computed ERR, which machine is to be selected? Explain the difference between the IRR & ERR methods as cxplained in the iecture.

A company is considering purchasing either machine A or B, given that MARR is 10%, and the company projected sales is 40,000 units. Machine A Machine B $90,000 $39,000 $1100 +.02xunits $600 +0.03xunits Initial cost $70,000 $40,000 $1000+0.03xunit $500+0.05xunit 8 years $15,000 Annual revenues Annual Operation cost Annual Maintenance cost Life span 6 years Salvage value $10,000 Draw the cash flow diagram for each machine. a. b. Compute ERR for each machine, based on computed ERR, which machine is to be selected? Explain the difference between the IRR & ERR methods as cxplained in the iecture.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

A company is considering purchasing either machine A or B, given that MARR is 10%, and the company
projected sales is 40,000 units.
Machine A
Machine B
$90,000
$39,000
$1100 +.02xunits
$600 +0.03xunits
Initial cost
$70,000
$40,000
$1000+0.03xunit
$500+0.05xunit
8 years
$15,000
Annual revenues
Annual Operation cost
Annual Maintenance cost
6 years
$10,000
Life span
Salvage value
Draw the cash fiow diagram for each machine.
a.
b. Compute ERR for each machine, based on computed ERRS, which machine is to be selected7
Explain the difference between the IRR & ERR methods as explained in the lecture.

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