In the process of performing a replacement study, an engineer at a fiber optics manufacturing company has two options to reduce costs on a production line. The currently owned Robot X can be sold now for $82,000. If kept, it will have an annual M&O cost of $30,000, and salvage values of $50,000, $42,000, and $35,000 after 1, 2, and 3 years, respectively. A challenger, Robot Y, will have a first cost of $97,000, an annual M&O cost of $27,000, and salvage values of $66,000, $56,000, and $42,000 after 1, 2, and 3 years, respectively. Which robot should be selected if a 2-year study period is used at an interest rate of 12% per year? Solve by two ways: by hand and by spreadsheet.
In the process of performing a replacement study,
an engineer at a fiber optics manufacturing company
has two options to reduce costs on a production
line. The currently owned Robot X can be sold
now for $82,000. If kept, it will have an annual
M&O cost of $30,000, and salvage values of
$50,000, $42,000, and $35,000 after 1, 2, and
3 years, respectively. A challenger, Robot Y, will
have a first cost of $97,000, an annual M&O cost of
$27,000, and salvage values of $66,000, $56,000,
and $42,000 after 1, 2, and 3 years, respectively.
Which robot should be selected if a 2-year study
period is used at an interest rate of 12% per year?
Solve by two ways: by hand and by spreadsheet.
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