A company is considering the purchase of either machine A or machine B. And the interest rate is 10%. The following table shows the cash flows of both machines. Machine Initial investment ($) Other costs ($) Service life (years) Salvage value ($) Cash flow diagram for Machine A: A $80,000 $10,000 for the first 10 years, increasing at a rate of 5% from year 11 onwards 20 20,000 PW of machine A: B $100,000 $15,000 for the first 15 years and $20,000 for the remaining years a) Which alternative should the company choose if it adopts an interest rate of 10%? Use present worth (PW) method to evaluate the two machines and show your calculations in the space given below. 20 25,000

A company is considering the purchase of either machine A or machine B. And the interest rate is 10%. The following table shows the cash flows of both machines. Machine Initial investment ($) Other costs ($) Service life (years) Salvage value ($) Cash flow diagram for Machine A: A $80,000 $10,000 for the first 10 years, increasing at a rate of 5% from year 11 onwards 20 20,000 PW of machine A: B $100,000 $15,000 for the first 15 years and $20,000 for the remaining years a) Which alternative should the company choose if it adopts an interest rate of 10%? Use present worth (PW) method to evaluate the two machines and show your calculations in the space given below. 20 25,000

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 the purchase of either machine A or machine B. And the interest rate is 10%.
The following table shows the cash flows of both machines.
Machine
Initial investment ($)
Other costs ($)
Service life (years)
Salvage value ($)
Cash flow diagram for Machine A:
A
$80,000
$10,000 for the first 10
years, increasing at a
rate of 5% from year 11
onwards
20
20,000
PW of machine A:
B
$100,000
$15,000 for the first 15
years and $20,000 for
the remaining years
a) Which alternative should the company choose if it adopts an interest rate of 10%? Use present
worth (PW) method to evaluate the two machines and show your calculations in the space given
below.
20
25,000

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