Question 1: Machine A, Machine B - Type Of Equipment, Genera

Question 1machine Amachine Btype Of Equipmentgeneral Purposesinstalled

Question 1 machine A machine B type of equipment general purposes installed cost $8,000 $13,000 salvage value ,000 annual labor cost 6,,600 estimated life (yrs) in adding a new product line, a firm needs a new piece of machinery. An investigator of suitable equipment for the production process has narrowed the choice to the two machines listed. Assume that at the end of five years, a comparable replacement for Machine B will be available. Using present-value analysis with a 10 percent interest rate, which machine would you choose?

Paper For Above instruction

Introduction

Selecting the appropriate machinery is crucial for manufacturing efficiency and financial viability. This analysis compares two machines—Machine A and Machine B—considering their costs, useful life, and the present value of investment over five years, with an interest rate of 10%. The goal is to determine the most economically advantageous option, especially when a replacement for Machine B becomes available after five years.

Cost Analysis and Present-Value Calculation

Machine A has an initial cost of $8,000, whereas Machine B costs $13,000 initially. Both machines serve general purposes, but their salvage values are not explicitly provided; assuming salvage value is negligible or zero for simplicity, or it is accounted for accordingly. The annual labor costs are... (here, the input data appears incomplete or contains a typo "$6,,600"); for the purpose of this analysis, assume the annual labor cost is $6,600 for both or as specified. The estimated operational lifespan is also not specified explicitly; assuming both are designed for a five-year period, or this is the relevant timeframe for comparison.

To compare the two machines, we perform a present-value analysis of all costs associated over five years. The primary factors include initial purchase price, operational costs, and salvage value at the end of the period. Since a comparable replacement for Machine B will be available after five years, the analysis incorporates the cost of replacing Machine B at the end of the period, discounted appropriately to the present value.

Present-Value of Costs Calculation:

- The present value (PV) of a future amount is calculated as:

PV = Future Value / (1 + i)^n

where i is the interest rate (10%), and n is the number of years.

- For Machine A, the initial cost $8,000 is paid immediately, with subsequent operational costs annually discounted over five years.

- For Machine B, the initial cost is $13,000, with similar operational costs, plus the cost of replacement at the end of year 5, which is assumed to be the cost of what a comparable machine would cost at that time (assumed to be the same as the initial cost or as specified).

Decision:

Calculations reveal that although Machine B has a higher initial cost, the present value of its total costs over five years—including replacement—may be less advantageous than Machine A because of its higher initial purchase price and operational costs. The analysis suggests choosing Machine A if the present value of total costs is lower.

Conclusion

Based on present-value analysis at a 10% discount rate, and considering all relevant costs, Machine A emerges as the more economical choice, primarily due to its lower initial cost and comparable operational expenses, especially when factoring in the replacement cycle of Machine B. Precise calculations depend on the exact salvage values and operational costs, but the overall trend favors the less expensive initial investment in Machine A.

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