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Homework answers / question archive / The owner of a comer lot wants to find a use that will yield a desirable return on his investment After much study and calculation, the owner decides that the two best alternatives are: First Cost Annual Maintenance Annual Income Salvage Value Life of Building in Years 3 axis CNC $80,000 3,000 11,000 0 15 5-axis CNC $120,000 5,000 16,000 0 20 If the owner wants a minimum attractive rate on his investment of 6%, using net annual worth (NAW) analysis, which of the two alternatives would you recommend?
The owner of a comer lot wants to find a use that will yield a desirable return on his investment After much study and calculation, the owner decides that the two best alternatives are: First Cost Annual Maintenance Annual Income Salvage Value Life of Building in Years 3 axis CNC $80,000 3,000 11,000 0 15 5-axis CNC $120,000 5,000 16,000 0 20 If the owner wants a minimum attractive rate on his investment of 6%, using net annual worth (NAW) analysis, which of the two alternatives would you recommend?
Calculation of Net annual worth (NAW) analysis for the 3-Axis CNC -
Net annual worth = (First cost + (Annual income - Annual maintenance)*PVIFA(6%,15Years) + PVIF(6%,15)*Salvage Value)/PVIFA(6%,15years)
NAW (3 Axis-CNC) = (-80000 + (11000 - 3000)*9.712249 + 0.417265*0)/9.7122
= (-80000 + 8000*9.712249 + 0)/9.7122
= (-80000 + 77698)/9.7122
= - $2302/9.7122
= $ -237.02
Calculation of Net annual worth (NAW) analysis for the 5-Axis CNC -
Net annual worth(NAW) = (First cost + (Annual income - Annual maintenance)*PVIFA(6%,20Years) + PVIF(6%,20)*Salvage Value)/PVIFA(6%,20)
NAW = (-120000 + (16000 - 5000)*11.46992 + 0.3118*0)/11.4699
= (-120000 + 11000*11.46992 + 0)/11.4699
= (-120000 + 126169.1)/11.4699
= $6169.1/11.4699
= $ 537.85
On the basis of Net annual worth, 5-Axis CNC is preferred.
