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.

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

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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