Four different machines were under consideration for materials flow improvement on a drug bottling line. An engineer performed the economic analysis to select the best machine, but some of his calculations were removed from the report by a disgruntled employee. All machines are assumed to have a 10-year life. (a) Fill in the missing values in the comparison table. (b) Select the best machine at MARR = 18% per year, provided one must be chosen. Machine 1 2 3 Initial cost, $ ? -60,000 -72,000 -98,000 Annual cost, $ per year Annual savings, $ -70,000 -64,000 -61,000 -58,000 +80,000 +80,000 +80,000 +82,000 per year Overall ROR, i*, % 18.6% ? 23.1% 20.8% Machines compared 2 vs. 1 3 vs. 2 4 vs. 3 Incremental investment, $ - 16,000 -26,000 Incremental cash flow, $ per year +6,000 +3,000 ?
Four different machines were under consideration for materials flow improvement on a drug bottling line. An engineer performed the economic analysis to select the best machine, but some of his calculations were removed from the report by a disgruntled employee. All machines are assumed to have a 10-year life. (a) Fill in the missing values in the comparison table. (b) Select the best machine at MARR = 18% per year, provided one must be chosen. Machine 1 2 3 Initial cost, $ ? -60,000 -72,000 -98,000 Annual cost, $ per year Annual savings, $ -70,000 -64,000 -61,000 -58,000 +80,000 +80,000 +80,000 +82,000 per year Overall ROR, i*, % 18.6% ? 23.1% 20.8% Machines compared 2 vs. 1 3 vs. 2 4 vs. 3 Incremental investment, $ - 16,000 -26,000 Incremental cash flow, $ per year +6,000 +3,000 ?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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I need answer of question b
Transcribed Image Text:Four different machines were under consideration for materials flow improvement on a drug
bottling line. An engineer performed the economic analysis to select the best machine, but
some of his calculations were removed from the report by a disgruntled employee. All
machines are assumed to have a 10-year life.
(a) Fill in the missing values in the comparison table.
(b) Select the best machine at MARR = 18% per year, provided one must be chosen.
Machine
1
2
3
4
Initial cost, $
?
-60,000 -72,000 -98,000
Annual cost,
$ per year
Annual savings, $
-70,000 -64,000 -61,000 -58,000
per year
+80,000 +80,000 +80,000 +82,000
Overall ROR, i*, %
18.6%
?
23.1%
20.8%
Machines compared
2 vs. 1
3 vs. 2 4 vs. 3
Incremental
investment, $
- 16,000
-26,000
Incremental cash
flow, $ per year
+6,000 +3,000
?
35.7%
ROR on increment,
Ai*, %
?
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