Andrews Manufacturing offers three models for one of its products to its customers. You have been asked to analyze the choices from the customer's perspec- tive. Which model should a customer choose if each model has a life of 12 years? Doing nothing is an alternative. Alternative Deluxe Regular Economy First cost $220,000 $125,000 79,000 $75,000 28,000 Annual benefit 43,000 Maintenance and 38,000 13,000 8,000 operating costs Salvage value 16,000 6,900 3,000 (a) Construct a choice table for interest rates from 0% to 100%. (b) MARR = 15%, Using incremental rate of return analysis, which alternative, if any, should the %3D customer choose?
Andrews Manufacturing offers three models for one of its products to its customers. You have been asked to analyze the choices from the customer's perspec- tive. Which model should a customer choose if each model has a life of 12 years? Doing nothing is an alternative. Alternative Deluxe Regular Economy First cost $220,000 $125,000 79,000 $75,000 28,000 Annual benefit 43,000 Maintenance and 38,000 13,000 8,000 operating costs Salvage value 16,000 6,900 3,000 (a) Construct a choice table for interest rates from 0% to 100%. (b) MARR = 15%, Using incremental rate of return analysis, which alternative, if any, should the %3D customer choose?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:8-19 Andrews Manufacturing offers three models for one
of its products to its customers. You have been asked
to analyze the choices from the customer's perspec-
tive. Which model should a customer choose if each
model has a life of 12 years? Doing nothing is an
alternative.
Alternative
Deluxe
Regular
Economy
First cost
$220,000 S125,000
43,000
13,000
$75,000
28,000
8,000
Annual benefit
79,000
Maintenance and
38,000
operating costs
Salvage value
16,000
6,900
3,000
(a) Construct a choice table for interest rates from
0% to 100%.
(b) MARR
analysis, which alternative, if any, should the
15%. Using incremental rate of return
customer choose?
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