For a new punch press. Company A charges $250,000 to deliver and install it. Company A has estimated that the machine will have operating and maintenance (O & M) costs of $4000 a year. You estimate an annual benefit of $89,000. Company B charges $205,000 to deliver and install the device. Company B has estimated O & M of the press at $4300 a year. You estimate an annual benefit of $86,000. Both machines will last 5 years and can be sold for $15,000. Use an interest rate of 12%. Which machine should your company buy?
For a new punch press. Company A charges $250,000 to deliver and install it. Company A has estimated that the machine will have operating and maintenance (O & M) costs of $4000 a year. You estimate an annual benefit of $89,000. Company B charges $205,000 to deliver and install the device. Company B has estimated O & M of the press at $4300 a year. You estimate an annual benefit of $86,000. Both machines will last 5 years and can be sold for $15,000. Use an interest rate of 12%. Which machine should your company buy?
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 3P
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For a new punch press. Company A charges $250,000 to deliver and install it. Company A has estimated that the machine will have operating and maintenance (O & M) costs of $4000 a year. You estimate an annual benefit of $89,000. Company B charges $205,000 to deliver and install the device. Company B has estimated O & M of the press at $4300 a year. You estimate an annual benefit of $86,000. Both machines will last 5 years and can be sold for $15,000. Use an interest rate of 12%. Which machine should your company buy?
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