An engineer must recommend one of two machines for integration into an upgradedmanufacturing line. She obtains estimates from two salespeople. Salesman A gives her theestimates in future (then-current) dollars, while saleswoman B provides the estimates in today’s(constant-value) dollars. The company has a MARR of a real 15% per year, and it expectsinflation to be 5% per year. Use PW analysis to determine which machine the engineer shouldrecommend. ### Cost Analysis of Sales RepresentativesThe table below presents a cost comparison between two sales representatives, referred to as Salesman A and Saleswoman B. The data is organized into three categories: initial cost (first cost), annual operating cost (AOC), and the expected life of their respective strategies or employment. | | Salesman A, Future \$ | Saleswoman B, Today's \$ ||---------------------------|-----------------------|--------------------------|| First cost, \$ | -60,000 | -95,000 || AOC, \$/year | -55,000 | -35,000 || Life, years | 10 | 10 |**Explanation:**- **First cost**: This represents the initial investment required. Salesman A has a first cost of \$60,000 while Saleswoman B has a higher initial cost of \$95,000.- **AOC (Annual Operating Cost)**: This denotes the yearly expense associated with each. Salesman A incurs \$55,000 annually, which is notably higher than Saleswoman B's annual cost of \$35,000.- **Life (years)**: Both sales strategies have an expected duration of 10 years.This table helps in understanding the financial implications over a 10-year period and can be instrumental in making strategic decisions regarding employment or sales strategy investments.

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ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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An engineer must recommend one of two machines for integration into an upgraded
manufacturing line. She obtains estimates from two salespeople. Salesman A gives her the
estimates in future (then-current) dollars, while saleswoman B provides the estimates in today’s
(constant-value) dollars. The company has a MARR of a real 15% per year, and it expects
inflation to be 5% per year. Use PW analysis to determine which machine the engineer should
recommend.

### Cost Analysis of Sales Representatives

The table below presents a cost comparison between two sales representatives, referred to as Salesman A and Saleswoman B. The data is organized into three categories: initial cost (first cost), annual operating cost (AOC), and the expected life of their respective strategies or employment.

| | Salesman A, Future \$ | Saleswoman B, Today's \$ |
|---------------------------|-----------------------|--------------------------|
| First cost, \$ | -60,000 | -95,000 |
| AOC, \$/year | -55,000 | -35,000 |
| Life, years | 10 | 10 |

**Explanation:**
- **First cost**: This represents the initial investment required. Salesman A has a first cost of \$60,000 while Saleswoman B has a higher initial cost of \$95,000.
- **AOC (Annual Operating Cost)**: This denotes the yearly expense associated with each. Salesman A incurs \$55,000 annually, which is notably higher than Saleswoman B's annual cost of \$35,000.
- **Life (years)**: Both sales strategies have an expected duration of 10 years.

This table helps in understanding the financial implications over a 10-year period and can be instrumental in making strategic decisions regarding employment or sales strategy investments.

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