Answered: company uses an interest rate of 12%,…

company uses an interest rate of 12%, which is the best alternative? Use NPW to make your decision. (Note: Consider the least comm

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

The following costs are associated with three tomato-peeling machines being considered for use in a canning plant. If the canning
company uses an interest rate of 12%, which is the best alternative? Use NPW to make your decision. (Note: Consider the least common
multiple as the study period.)
Machine
A
B
с
$52,000 $63,000 $67,000|
15,000 9,000 12,000
38,000 31,000 37,000
13,000 19,000
22,000
12
First cost
O & M costs
Annual benefit
Salvage value
Useful life (yrs) 4
6

Expert Solution

Step 1: Introduce the concept of Net Present Worth (NPW).

Net Present Worth (NPW) calculates the present value of cash inflows and outflows over a period of time.

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