Choose from the two machines which is more economical? Machine A Machine B First cost P8,000 Salvage Value 0 Annual Operation 13,000 Annual Maintenance P1,200 Taxes & Insurance 3% P14,000 P2,000 P2,400 P1,000 3% Life, years 10 15

Economics Nov 28, 2020

Expert Solution

Machine A is more economical
Working:
Annual cost in type A: 3000 + 1200 + (8000 * 3%) = 4440
Annual cost in type B: 2400 + 1000 + (14000 * 3%) = 3820
Assuming the MARR to be 10%
PW-A = -8000 - 4440 (P/A,10%, 10) = -35281.88
PW-B = -14000 - 3820 (P/A,10%, 15) + 2000 (P/F , 10%, 15) = -42576.44
Thus Machine A is more economical

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