b) National Homebuilders, Inc., plans to purchase new cut-and-finish equipment. The details of the 2 alternative options are summarized in the table below. The interest rate is 10% per year. Alternative B 18,000 3,100 2,000 8 First Cost, S Annual Operating Cost, S Salvage Value, S Equipment Life (years) Consider only machine A now. Alternative A 15,000 3,500 1,000 4 a) Calculate the AW of Machine A for one life cycle. b) Calculate the AW of Machine A for LCM-8 years (2 life cycles). c) Demonstrate the equivalence of AW over 2 life cycles and AW over one life cycle.
b) National Homebuilders, Inc., plans to purchase new cut-and-finish equipment. The details of the 2 alternative options are summarized in the table below. The interest rate is 10% per year. Alternative B 18,000 3,100 2,000 8 First Cost, S Annual Operating Cost, S Salvage Value, S Equipment Life (years) Consider only machine A now. Alternative A 15,000 3,500 1,000 4 a) Calculate the AW of Machine A for one life cycle. b) Calculate the AW of Machine A for LCM-8 years (2 life cycles). c) Demonstrate the equivalence of AW over 2 life cycles and AW over one life cycle.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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![b) National Homebuilders, Inc., plans to purchase new cut-and-finish equipment. The details of the 2
alternative options are summarized in the table below. The interest rate is 10% per year.
First Cost, S
Annual Operating Cost, S
Salvage Value, S
Equipment Life (years)
Consider only machine A now.
Alternative A
15,000
3,500
1,000
4
Alternative B
18,000
3,100
2,000
8
a) Calculate the AW of Machine A for one life cycle.
b) Calculate the AW of Machine A for LCM = 8 years (2 life cycles).
c) Demonstrate the equivalence of AW over 2 life cycles and AW over one life cycle.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F2736f8c4-7a30-4ba2-b9fa-a9e9331eee78%2F7b65a9ee-19a6-467c-8cb9-e6c11b93e025%2Fh19pm7_processed.jpeg&w=3840&q=75)
Transcribed Image Text:b) National Homebuilders, Inc., plans to purchase new cut-and-finish equipment. The details of the 2
alternative options are summarized in the table below. The interest rate is 10% per year.
First Cost, S
Annual Operating Cost, S
Salvage Value, S
Equipment Life (years)
Consider only machine A now.
Alternative A
15,000
3,500
1,000
4
Alternative B
18,000
3,100
2,000
8
a) Calculate the AW of Machine A for one life cycle.
b) Calculate the AW of Machine A for LCM = 8 years (2 life cycles).
c) Demonstrate the equivalence of AW over 2 life cycles and AW over one life cycle.
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