For a new product, the marketing department predicts that sales are expected to be 85,000 units in year 1, increasing by 15,000 each subsequent year to 160,000 in year 6. Option A: A manufacturing machine with up-front equipment purchase cost of $175,000 and the manufacturing cost per unit is $0.75. At the end of 6 years, the equipment salvage recovery is $15,000. Option B: A machine with up-front purchase cost of $225,000 with a manufacturing cost of $0.65 per unit, and equipment salvage recovery at the end of 6 years of $35,000. Assuming an interest rate of 7% and a production period of 6 years, which option should you choose based on a present equivalent evaluation with no considerations for depreciation?

For a new product, the marketing department predicts that sales are expected to be 85,000 units in year 1, increasing by 15,000 each subsequent year to 160,000 in year 6. Option A: A manufacturing machine with up-front equipment purchase cost of $175,000 and the manufacturing cost per unit is $0.75. At the end of 6 years, the equipment salvage recovery is $15,000. Option B: A machine with up-front purchase cost of $225,000 with a manufacturing cost of $0.65 per unit, and equipment salvage recovery at the end of 6 years of $35,000. Assuming an interest rate of 7% and a production period of 6 years, which option should you choose based on a present equivalent evaluation with no considerations for depreciation?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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