Required information An electric switch manufacturing company is trying to decide between three different assembly methods. Method A has an estimated first cost of $38,000, an annual operating cost (AOC) of $10,000, and a service life of 2 years. Method B will cost $79,000 to buy and will have an AOC of $3,000 over its 4-year service life. Method C costs $143,000 initially with an AOC of $3,000 over its 8-year life. Methods A and B will have no salvage value, but Method C will have equipment worth 6% of its first cost.

Required information An electric switch manufacturing company is trying to decide between three different assembly methods. Method A has an estimated first cost of $38,000, an annual operating cost (AOC) of $10,000, and a service life of 2 years. Method B will cost $79,000 to buy and will have an AOC of $3,000 over its 4-year service life. Method C costs $143,000 initially with an AOC of $3,000 over its 8-year life. Methods A and B will have no salvage value, but Method C will have equipment worth 6% of its first cost.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 31P: Jonfran Company manufactures three different models of paper shredders including the waste...

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Question

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Required information
An electric switch manufacturing company is trying to decide between three different assembly methods. Method A
has an estimated first cost of $38,000, an annual operating cost (AOC) of $10,000, and a service life of 2 years. Method
B will cost $79,000 to buy and will have an AOC of $3,000 over its 4-year service life. Method C costs $143,000
initially with an AOC of $3,000 over its 8-year life. Methods A and B will have no salvage value, but Method C will have
equipment worth 6% of its first cost.
Perform a future worth analysis to select the method at i= 13% per year.
The future worth of method A is $ -54681.02 O
The future worth of method B is $ -87923.41
The future worth of method C is $
Method
A
O is selected.

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