Homework Soursethis is based on the following statement The data for new an
this is based on the following statement:
The data for new and used machines are shown below:
Used machine
New machine
Initial cost($)
15,000
40,000
Annual operating cost ($/year)
8,000
2,000
Salvage value ($)
5,000
10,000
Life (years)
4
6
Use an interest rate of 10% per year compounded monthly. Compare the machines on the basis of a present worth analysis. Which machine you will pick? Why?
| Used machine | New machine | |
| Initial cost($) | 15,000 | 40,000 |
| Annual operating cost ($/year) | 8,000 | 2,000 |
| Salvage value ($) | 5,000 | 10,000 |
| Life (years) | 4 | 6 |
Solution
Value of used m/c = -15000 -8000/(1+0.1/12)^1-8000/(1+0.1/12)^2-8000/(1+0.1/12)^3-8000/(1+0.1/12)^4+5000/(1+0.1/12)^4
=-41388.022
Value of new m/c=-40000-2000/(1+0.1/12)^1-2000/(1+0.1/12)^2-2000/(1+0.1/12)^3-2000/(1+0.1/12)^4-2000/(1+0.1/12)^5-2000/(1+0.1/12)^6+10000/(1+0.1/12)^6
=-42142.821
Hence I will pick the used machine.
