ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Question
Assume you are investigating buying one of two different robots. The annual benefits are unknown (but equal between the alternatives), and the costs and salvage value are listed below. Which should be selected based on an annual worth comparison at an interest rate of 10% per year? a) What is the Capital Recovery cost for Robot A? b) What is the Capital Recovery cost for Robot B? c) What is the total Annual Worth for Robot A? d) What is the total Annual Worth for Robot B? e) Which Robot would you select? f) With your selection in part (e), what is the Annual Net Cash Flow that is required recover the capital expenditure on this robot? (Reminder: Annual Net Cash Flow = Annual Cash Inflow - Annual Cash Outflow) First cost Maintenance cost/year Salvage value Life, years Robot A ($10,000) ($1,000) $1,500 3 Robot B ($12,000) ($2,400) $2,000
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Transcribed Image Text:Assume you are investigating buying one of two different robots. The annual benefits are unknown (but equal between the alternatives), and the costs and salvage value are listed below. Which should be selected based on an annual worth comparison at an interest rate of 10% per year? a) What is the Capital Recovery cost for Robot A? b) What is the Capital Recovery cost for Robot B? c) What is the total Annual Worth for Robot A? d) What is the total Annual Worth for Robot B? e) Which Robot would you select? f) With your selection in part (e), what is the Annual Net Cash Flow that is required recover the capital expenditure on this robot? (Reminder: Annual Net Cash Flow = Annual Cash Inflow - Annual Cash Outflow) First cost Maintenance cost/year Salvage value Life, years Robot A ($10,000) ($1,000) $1,500 3 Robot B ($12,000) ($2,400) $2,000
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Step 1: Define Investment decision-making
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Step 2: Explain the Capital Recovery cost for Robot A
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Step 3: Explain the Capital Recovery cost for Robot B
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Step 4: Explain the total annual worth for Robot A
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Step 5: Explain the total Annual Worth for Robot B
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Step 6: Explain the robot with the higher total annual worth.
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Step 7: Explain the Annual Net Cash Flow that is required recover the capital expenditure on this robot
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