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 $14,000 $14,000 $8,000 Alternative B Initial Investment Annual Cost $65,000 $9,000 $13,000 Market Value at End of Useful Life Useful Life a) Which machine would be selected on the basis ofrereatability assumption? b) Using co-terminated assumption with a 5.veat 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? 5 years 20 years
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 $14,000 $14,000 $8,000 Alternative B Initial Investment Annual Cost $65,000 $9,000 $13,000 Market Value at End of Useful Life Useful Life a) Which machine would be selected on the basis ofrereatability assumption? b) Using co-terminated assumption with a 5.veat 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? 5 years 20 years
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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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
$65,000
$9,000
$13,000
Initial Investment
$14,000
Annual Cost
$14,000
$8,000
Market Value at
End of Useful Life
Useful Life
5 years
20 years
a) Which machine would be selected on the basis gtteneatability assumption?
b) Using co-terminated assumption with a 5 vear 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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