A firm is considering the purchase of a new machine to increase the output of an existing production process. If each of thesemachines provides the same service over their useful lives and the MARR is 15%,Initial InvestmentAnnual CostMarket Value atAlternative A$14,000$14,000$8,000Alternative B$65,000$9,000$13,000End of Useful LifeUseful Lifea) Which machine would be selected on the basis gf teBratabilitx, assumption?b) Using co-terminated assumption with a 5.year study period (compute imputed market value for alternative B), whichalternative is preferred?c) If perpetual service life is assumed, which of these alternatives do you recommend?5 years20 years

A B Initial Investment 14,000 65,000 Annual Cost 14,000 9,000 MV 8,000 13,000

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 $65,000 $9,000 $13,000 Initial Investment Annual Cost Market Value at End of Useful Life Useful Life a) Which machine would be selected on the basis gfrereatability 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? 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 $65,000 $9,000 $13,000 Initial Investment Annual Cost Market Value at End of Useful Life Useful Life a) Which machine would be selected on the basis gfrereatability 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? 5 years 20 years

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 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%,
Initial Investment
Annual Cost
Market Value at
Alternative A
$14,000
$14,000
$8,000
Alternative B
$65,000
$9,000
$13,000
End of Useful Life
Useful Life
a) Which machine would be selected on the basis gf teBratabilitx, 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?
5 years
20 years

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