Check my work 6 Required information An electric switch manufacturing company is
ID: 1138771 • Letter: C
Question
Check my work 6 Required information An electric switch manufacturing company is trying to decide between three different assembly methods. Method A has an estimated first cost of $42,000, an annual operating cost (AOC) of $9,000, and a service life of 2 years. Method B will cost $83,000 to buy and will have an AOC of $5,000 over its 4-year service life. Method C costs $119,000 initially with an AOC of $5,000 over its 8-year life. Methods A and B will have no salvage value, but Method C will have equipment worth 10% of its first cost. Part 1 of 2 10 points eBook Perform a future worth analysis to select the method at 1-9% per year. The future worth of method A is $ The future worth of method B is $ The future worth of method C is $ Methol (Click to select) is selected. Hint Print ReferencesExplanation / Answer
(1) FW, Method A ($) = 42,000 x F/P(9%, 2) + 9,000 x F/A(9%, 2)
= 42,000 x 1.1881** + 9,000 x 2.0900**
= 49,900.2 + 18,810
= 68,710.2
(2) FW, Method B ($) = 83,000 x F/P(9%, 4) + 5,000 x F/A(9%, 4)
= 83,000 x 1.4116** + 5,000 x 4.5731**
= 117,162.8 + 22,865.5
= 40,028.3
(3) For method C, Salvage value = $119,000 x 10% = $11,900
FW, Method C ($) = 119,000 x F/P(9%, 8) + 5,000 x F/A(9%, 8) - 11,900
= 119,000 x 1.9926** + 5,000 x 11.0285** - 11,900
= 237,119.4 + 55,142.5 - 11,900
= 280,361.9
(NOTE: We computed FW of all costs. If FW of benefits are required, all the answers should have a negative (-) sign).
(4) Since Method B has lowest FW of costs, Method B should be selected.
**From F/P and F/A factor tables