A small manufacturing firm is considering the purchase of a new machine to modernize one of its current production lines. Two types of machines are available on the market. The lives of machine A and machine B are 4 years and 6 years, respectively, but the firm does not expect to need the service of either machine for more than 5 years. The machines have the following expected receipts and disbursements. Item Machine A (USD) Machine B(USD) First cost 325k 425k Service life 4 years 6 years Estimated Salvage Value 30k 50k Annual Opertaing & Maintenance Costs 40k 26k Oil Filter Change every other year 5k NONE Enginer Overhaul 10k every 3 years 14k every 4 years The firm always has another option: To lease a machine at 150k a year, fully maintained by the leasing company. After four years of use, the salvage value for machine B will remain at 50k. How many decision alternatives are there? Which decision appears to be the best at i = 10%?
A small manufacturing firm is considering the purchase of a new machine to modernize one of its current production lines. Two types of machines are available on the market. The lives of machine A and machine B are 4 years and 6 years, respectively, but the firm does not expect to need the service of either machine for more than 5 years. The machines have the following expected receipts and disbursements.
|
Item |
|
Machine A (USD) |
Machine B(USD) |
|
First cost |
|
325k |
425k |
|
Service life |
|
4 years |
6 years |
|
Estimated Salvage Value |
|
30k |
50k |
|
Annual Opertaing & Maintenance Costs |
|
40k |
26k |
|
Oil Filter Change every other year |
|
5k |
NONE |
|
Enginer Overhaul |
|
10k every 3 years |
14k every 4 years |
The firm always has another option: To lease a machine at 150k a year, fully maintained by the leasing company. After four years of use, the salvage value for machine B will remain at 50k.
- How many decision alternatives are there?
- Which decision appears to be the best at i = 10%?
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