10 pts Use the table below to determine the best equipment o

(10 pts) Use the table below to determine the best equipment option using the NPW method. The following costs are associated with three different equipment choices that are under consideration for use in a manufacturing facility. The interest rate is 12%. Equipment Initial Cost Annual Maintenance Cost$10,000 $12,000 $7,000 Salvage Value Useful Life (yrs) 80,000$95,000 $115,000 $25,000$45,000$49,000 12 24

Solution

PW for A=-80000-10000/0.12+25000/(1.12)^(infinity)

=-$163,333

PW for B=-95000-12000/(1.12)-12000/(1.12)^2-...-12000/(1.12)^12+45000/(1.12)^12=-$157,782

PW for C=-115000-7000/(1.12)-7000/(1.12)^2-...-7000/(1.12)^24+49000/(1.12)^24=$157,782=-$173,000

We have Minimum PW for Cosr is lower to B

Therefore choose B