Please show work. You purchase a machine for $50,000 now, with a salvage value o
ID: 2612371 • Letter: P
Question
Please show work. You purchase a machine for $50,000 now, with a salvage value of $12,000 in 10 years. The machine will have O&M; costs and cost of raw goods totaling $25,000 per year. The machine will produce 3,200 high-quality parts per year. If i = 10% annual rate compounded annually, what is the cost per high-quality part produced? You can choose between two purchases: Machine A or Machine B. Machine A costs $20,000 and has a salvage value of $6,000 after 4 years. Machine B costs $28,000 and has a salvage value of $4,000 after 5 years. You can lease a Machine B equivalent for $5,000 per year, if you initially purchased Machine B. You need a machine for a total of 8 years, and can purchase a new machine in the future at the same price with the same salvage value. If i is 10% annual rate compounded annually, which machine should be purchased? Show work and justify answer.Explanation / Answer
Question 5. Purchase price 50000 Less: Solvage 12000 Net Purchase 38000 Life of the machine 10 year Annual Depreciation 3800 Total Year Annual Cost pv factor PV Depreciation Cost 1 25000 0.909091 22727.27 3800 26527.27 2 25000 0.826446 20661.16 3800 24461.16 3 25000 0.751315 18782.87 3800 22582.87 4 25000 0.683013 17075.34 3800 20875.34 5 25000 0.620921 15523.03 3800 19323.03 6 25000 0.564474 14111.85 3800 17911.85 7 25000 0.513158 12828.95 3800 16628.95 8 25000 0.466507 11662.68 3800 15462.68 9 25000 0.424098 10602.44 3800 14402.44 10 25000 0.385543 9638.58 3800 13438.58 Total 191614.18 Total No of parts in 10 year = 3200 x 10 =32000 Cost per parts= 191,614.18/32000=$5.99 Question 6 Machine A Machine B Price of Machine 20000 28000 Less:Solvage value 6000 4000 Depreciable Assets 26000 32000 Years of life 4 5 Present Value Year Machine A Machine B PV factor Machine A Machine B 0 -20000 -28000 1 -20000 -28000 1 0.909091 0 0 2 0.826446 0 0 3 0.751315 0 0 4 4000 0.683013 2732.054 0 5 -16000 5000 0.620921 -9934.74 3104.607 6 -5000 0.564474 0 -2822.37 7 -5000 0.513158 0 -2565.791 8 4000 -5000 0.466507 1866.03 -2332.537 Total -25336.7 -32616.09 Machine A have Lesser Present Value of Cost, So, Machine should be purchased.