An engineer is considering two separate techniques for increasing the life of a

Question

An engineer is considering two separate techniques for increasing the life of a production machine.The first scheme uses vibration isolation pads that last 5 years and cost dollor 4,000.The life of the pads can be extended an additional 3 years by dollor 800 of maintainence at the end of the fifth year .The second solution is to build a vibration isolation structure for the machine that lasts for 20 years.If the company has minimum attractive rate of 4 percentage,how much can they afford to pay for the structure so that both options break-even? Dollor75 dollor4584 dollor 9390 dollor 98,433

Explanation / Answer

Answer: B) $4584

It is clear from the question that we have upfront cost of $4,000 and then $800 is required after 5 years. So, Present value of $800 is

= $800*1/(1.04)5+$4000

= $4584 Approx

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