A production plant manager has been presented with two proposals for automating an assembly process. Proposal A involve an initial cost of $15000 and an annual operating cost of $2000 per year for the next 4 years. Thereafter, the operating cost is expected to be $2700 per year. This equipment is expected to have a 20- year life with no salvage value. Proposal B requires an initial investment of $25000 and an annual operating cost of $1200 per year for the first 3 years. Thereafter, the operating cost is expected to increase by $120 per year. This equipment is expected to last 20 years and have a salvage value of $2000. If the company's MARR is 10%, which should be accepted using ROR analysis?

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
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A production plant manager has been
presented with two proposals for
automating an assembly process.
Proposal A involve an initial cost of
$15000 and an annual operating cost
of $2000 per year for the next 4 years.
Thereafter, the operating cost is
expected to be $2700 per year. This
equipment is expected to have a 20-
year life with no salvage value.
Proposal B requires an initial
investment of $25000 and an annual
operating cost of $1200 per year for
the first 3 years. Thereafter, the
operating cost is expected to increase
by $120 per year. This equipment is
expected to last 20 years and have a
salvage value of $2000. If the
company's MARR is 10%, which should
be accepted using ROR analysis?
Transcribed Image Text:A production plant manager has been presented with two proposals for automating an assembly process. Proposal A involve an initial cost of $15000 and an annual operating cost of $2000 per year for the next 4 years. Thereafter, the operating cost is expected to be $2700 per year. This equipment is expected to have a 20- year life with no salvage value. Proposal B requires an initial investment of $25000 and an annual operating cost of $1200 per year for the first 3 years. Thereafter, the operating cost is expected to increase by $120 per year. This equipment is expected to last 20 years and have a salvage value of $2000. If the company's MARR is 10%, which should be accepted using ROR analysis?
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