A firm is considering the purchase of a new machine to increase the output of an existing production process. If each of these machines provides the same service over their useful lives and the MARR is 15%, Alternative B Alternative A Initial Investment $14,000 Annual Cost $14,000 Market Value at $8,000 End of Useful Life Useful Life 5 years $65,000 $9,000 $13,000 20 years a) Which machine would be selected on the basis of repeatability assumption? b) Using co-terminated assumption with a 5 year study period (compute imputed market value for alternative B), which alternative is preferred? c) If perpetual service life is assumed, which of these alternatives do you recommend?
A firm is considering the purchase of a new machine to increase the output of an existing production process. If each of these machines provides the same service over their useful lives and the MARR is 15%, Alternative B Alternative A Initial Investment $14,000 Annual Cost $14,000 Market Value at $8,000 End of Useful Life Useful Life 5 years $65,000 $9,000 $13,000 20 years a) Which machine would be selected on the basis of repeatability assumption? b) Using co-terminated assumption with a 5 year study period (compute imputed market value for alternative B), which alternative is preferred? c) If perpetual service life is assumed, which of these alternatives do you recommend?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Engg economy. Pls answer a, b, and c. Thank you.
Transcribed Image Text:A firm is considering the purchase of a new machine to increase the output of an existing production process. If each of these
machines provides the same service over their useful lives and the MARR is 15%,
Alternative A
Alternative B
$14,000
$65,000
$9,000
$13,000
Initial Investment
$14,000
$8,000
Annual Cost
Market Value at
End of Useful Life
Useful Life
5 years
20 years
a) Which machine would be selected on the basis of.repeatability assumption?
b) Using co-terminated assumption with a 5 year study period (compute imputed market value for alternative B), which
alternative is preferred?
c) If perpetual service life is assumed, which of these alternatives do you recommend?
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Step 1: Define the Minimum Acceptable Rate of Return
VIEWStep 2: a) Determine the machine which would be the best choice
VIEWStep 3: b) Determine the alternative which will be be more preferred using a co terminated assumption
VIEWStep 4: c) Determine best alternative if perpetual service life is assumed
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