Assume you are investigating buying one of two different robots. The annual benefits are unknown (but equal between thealternatives), and the costs and salvage value are listed below. Which should be selected based on an annual worth comparison atan 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 CashFlow that is required recover the capital expenditure on this robot?(Reminder: Annual Net Cash Flow = Annual Cash Inflow -Annual Cash Outflow)First costMaintenance cost/yearSalvage valueLife, yearsRobot A($10,000)($1,000)$1,5003Robot B($12,000)($2,400)$2,000

Investment decision-making refers back to the technique of comparing unique investment alternatives…

Answered: investigating b

Business

Economics

investigating b

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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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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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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