Below are the costs and revenues of 2 alternatives for a machine. When the discount rate is 26.5% per year, determine which alternative is economically viable using the annual value method. 1. Machine2. MachineInitial investment expense$1,400,000$1,170,000Scrap price$280,000$175,500First year value of annual operating expense$60,000$28,000Annual increase rate of operating expenses%23%26Annual revenue$720,000$630,000Annual revenue change8 years fixed, then descending linearly7 years fixed, then geometricdecreasingAnnual reduction rate of revenuesor quantity$3,500-%6Economic Life20 years15 yearsBelow are the costs and revenues of 2 alternatives for a machine. When the discount rate is26.5%per year, determine which alternative is economically viable using the annual value

Answered: Below are the costs and revenues of 2…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Below are the costs and revenues of 2 alternatives for a machine. When the discount rate is 26.5% per year, determine which alternative is economically viable using the annual value method.

	1. Machine	2. Machine
Initial investment expense	$1,400,000	$1,170,000
Scrap price	$280,000	$175,500
First year value of annual operating expense	$60,000	$28,000
Annual increase rate of operating expenses	%23	%26
Annual revenue	$720,000	$630,000
Annual revenue change	8 years fixed, then descending linearly	7 years fixed, then geometricdecreasing
Annual reduction rate of revenues or quantity	$3,500	-%6
Economic Life	20 years	15 years

Below are the costs and revenues of 2 alternatives for a machine. When the discount rate is26.5%per year, determine which alternative is economically viable using the annual value

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