Please answer this question using designated methods and hand calculations. NOTE

Question

Please answer this question using designated methods and hand calculations.

NOTE: Show your works clearly and underline answer 1. Consider the following two mutually exclusive alternatives relate to an improvement project, and recommend which one should be implemented. Capital investment Useful life period, in year Machine X $20000 Machine Y $30000 10 Assume repeatability is applicable, MARR 20%, and analysis period 10 years. Calculate the incremental rate of return for the incremental cash flow when you decide to choose Machine Y over Machine X. Is that decision a good choice? (15 points)

Explanation / Answer

Formula sheet

A1 B C D E F G H I J K L M N 2 061216Q21 3 MARR 20% 4 Machine A Machine B 5 Capital Investment $20,000.00 $30,000.00 6 Useful life 5 10 7 8 Machine A 9 To run for 10 years, Machine A will need to bought twice 10 Year 0 1 2 3 4 5 6 7 8 9 10 11 Initial Investment ($20,000.00) 12 Investment for 2nd machine ($20,000.00) 13 NPV ($36,666.67) 14 Annuity Factor (10 years with 20% rate 4.19 15 Equivalnet Annual Cost $8,745.83 16 17 Machine B 18 To run for 10 years, Machine B will need to bought once 19 Year 0 1 2 3 4 5 6 7 8 9 10 20 Initial Investment ($30,000.00) 21 Investment for 2nd machine 22 NPV ($30,000.00) 23 Annuity Factor (10 years with 20% rate 4.19 24 Equivalnet Annual Cost $7,155.68 25 26 Since equivalent annual cost for machine B is lower, therefore Machine B is better choice. 27

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