Check my work 7 Required information Part 2 of 2 An electric switch manufacturin
ID: 2336869 • Letter: C
Question
Check my work 7 Required information Part 2 of 2 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. 10 points eBook Hint Print References Perform a present worth analysis to select the method at i: 9% per year. The present worth of method A is $ The present worth of method B is $ The present worth of method C is $ Metho (Click to select) is selected.Explanation / Answer
Present worth of Method A = 42000+9000/1.09+9000/1.09^2 = $ 57,832 Present worth of Method B = 83000+5000*(1.09^4-1)/(0.09*1.09^4) = $ 99,199 Present worth of Method C = 119000+5000*(1.09^8-1)/(0.09*1.09^8)-11900/1.09^8 = $ 1,40,702 Method A is selected as it has lowest PW of cost.