An electric switch manufacturing company has to choose one of three different assembly methods. Method A will have a first cost of $40,000, an annual operating cost of $9000, and a service life of 2 years. Method B will cost $80,000 to buy and will have an annual operating cost of $6000 over its 4-year service life. Method C will cost $130,000 initially with an annual operating cost of $4000 over its 8-year life. Methods A and B will have no salvage value, but method C will have some equipment worth an estimated $12,000. Which method should be selected? Use present worth analysis at an interest rate of 10% per year. *please answer in a neat and clear way
An electric switch manufacturing company has to choose one of three different assembly methods. Method A will have a first cost of $40,000, an annual operating cost of $9000, and a service life of 2 years. Method B will cost $80,000 to buy and will have an annual operating cost of $6000 over its 4-year service life. Method C will cost $130,000 initially with an annual operating cost of $4000 over its 8-year life. Methods A and B will have no salvage value, but method C will have some equipment worth an estimated $12,000. Which method should be selected? Use present worth analysis at an interest rate of 10% per year. *please answer in a neat and clear way
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 18P
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Question
An electric switch manufacturing company has to choose one of three different assembly methods.
Method A will have a first cost of $40,000, an annual operating cost of $9000, and a service life of
2 years. Method B will cost $80,000 to buy and will have an annual operating cost of $6000 over
its 4-year service life. Method C will cost $130,000 initially with an annual operating cost of $4000
over its 8-year life. Methods A and B will have no salvage value, but method C will have some
equipment worth an estimated $12,000. Which method should be selected? Use present worth
analysis at an interest rate of 10% per year.
*please answer in a neat and clear way.
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