One of two methods must be used to produce expansion anchors. Method A costs $80,000 initially and will have a $15,000 salvage value after 3 years. The operating cost with this method will be $30,000 per year. Method B will have a first cost of $120,000, an operating cost of $8000 per year, and a $40,000 salvage value after its 3-year life. At an interest rate of 12% per year, which method should be used on the basis of a present worth analysis? Also, write the two spreadsheet functions to perform the PW analysis.
One of two methods must be used to produce expansion anchors. Method A costs $80,000 initially and will have a $15,000 salvage value after 3 years. The operating cost with this method will be $30,000 per year. Method B will have a first cost of $120,000, an operating cost of $8000 per year, and a $40,000 salvage value after its 3-year life. At an interest rate of 12% per year, which method should be used on the basis of a present worth analysis? Also, write the two spreadsheet functions to perform the PW analysis.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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One of two methods must be used to produce expansion
anchors. Method A costs $80,000 initially
and will have a $15,000 salvage value after 3 years.
The operating cost with this method will be
$30,000 per year. Method B will have a first cost of
$120,000, an operating cost of $8000 per year, and
a $40,000 salvage value after its 3-year life. At an
interest rate of 12% per year, which method should
be used on the basis of a present worth analysis?
Also, write the two spreadsheet functions to perform
the PW analysis.
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