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Machine 1 2 3 4 Initial cost, $ Annual cost, S per year -60,000 -72,000 -98,000 - 70,000 -64,000 -61,000 -58,000 Annual savings, $ per year +80,000 +80,000 +80,000 +82,000 Overall ROR, % 18.6% 23.1% 20.8% Machines compared 2 to 1 3 to 2 4 to 3 Incremental investment, $ -16,000 -26,000 Incremental cash flow, S per year +6,000 +3,000 ? ROR on increment, % 35.7%

Machine 1 2 3 4 Initial cost, $ Annual cost, S per year -60,000 -72,000 -98,000 - 70,000 -64,000 -61,000 -58,000 Annual savings, $ per year +80,000 +80,000 +80,000 +82,000 Overall ROR, % 18.6% 23.1% 20.8% Machines compared 2 to 1 3 to 2 4 to 3 Incremental investment, $ -16,000 -26,000 Incremental cash flow, S per year +6,000 +3,000 ? ROR on increment, % 35.7%

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Four different machines are under consideration for improving material flow in a production process. An engineer performed an economic analysis to select the best machine, but some of his calculations were deleted from the report by a disgruntled employee. All machines are assumed to have a 10-year life. (a) Fill in the missing numbers in the report. (b) Which machine should the company select if its MARR is 18% per year and one of the machines must be selected?

Machine 1 2 3 4 Initial cost, $ Annual cost, S per year -60,000 -72,000 -98,000 - 70,000 -64,000 -61,000 -58,000 Annual savings, $ per year +80,000 +80,000 +80,000 +82,000 Overall ROR, % 18.6% 23.1% 20.8% Machines compared 2 to 1 3 to 2 4 to 3 Incremental investment, $ -16,000 -26,000 Incremental cash flow, S per year +6,000 +3,000 ? ROR on increment, % 35.7%
Transcribed Image Text:Machine 1 2 3 4 Initial cost, $ Annual cost, S per year -60,000 -72,000 -98,000 - 70,000 -64,000 -61,000 -58,000 Annual savings, $ per year +80,000 +80,000 +80,000 +82,000 Overall ROR, % 18.6% 23.1% 20.8% Machines compared 2 to 1 3 to 2 4 to 3 Incremental investment, $ -16,000 -26,000 Incremental cash flow, S per year +6,000 +3,000 ? ROR on increment, % 35.7%
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