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

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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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?
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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