An electronics manufacturer is considering the purchase of an automated assembly machine to 8) reduce production costs. It has narrowed its choices to two machines. The manufacturer expects to use the new machine for a 10-year period. Alternative 1 has a net savings of $130,000 for the first year with the annual savings for the subsequent years decreasing by 5% per year. Alternative 2 has a net savings of $120,000 for the first year with the annual savings for the subsequent years decreasing by $5,000 per year. The decrease in annual savings is attributed to increase in maintenance costs as the machines age. The company uses a TVOM of 10% per year compounded annually. a) b) c) have an initial cost of $500,000? Explain. Compute the present worth of the net savings for Alternative 1. Compute the present worth of the net savings for Alternative 2. Based on the above calculations, which alternative would you recommend, if both alternatives

An electronics manufacturer is considering the purchase of an automated assembly machine to 8) reduce production costs. It has narrowed its choices to two machines. The manufacturer expects to use the new machine for a 10-year period. Alternative 1 has a net savings of $130,000 for the first year with the annual savings for the subsequent years decreasing by 5% per year. Alternative 2 has a net savings of $120,000 for the first year with the annual savings for the subsequent years decreasing by $5,000 per year. The decrease in annual savings is attributed to increase in maintenance costs as the machines age. The company uses a TVOM of 10% per year compounded annually. a) b) c) have an initial cost of $500,000? Explain. Compute the present worth of the net savings for Alternative 1. Compute the present worth of the net savings for Alternative 2. Based on the above calculations, which alternative would you recommend, if both alternatives

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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