iRobot Company is analyzing two machines to determine which one it should purchase. Whichever machine is purchased will be replaced at the end of its useful life. The company requires a 14 percent rate of return and uses straight-line depreciation to a zero book value over the life of the machine. Machine A has a cost of $487,000, annual operating costs of $29,000, and a 6-year life. Machine B costs $315,000, has annual operating costs of $51,200, and a 4-year life. The firm currently pays no taxes. Which machine should be purchased and why

Question

08-04-2021
Business

Answered

Welcome to Westonci.ca, your ultimate destination for finding answers to a wide range of questions from experts. Experience the convenience of finding accurate answers to your questions from knowledgeable professionals on our platform. Join our Q&A platform to connect with experts dedicated to providing accurate answers to your questions in various fields.

iRobot Company is analyzing two machines to determine which one it should purchase. Whichever machine is purchased will be replaced at the end of its useful life. The company requires a 14 percent rate of return and uses straight-line depreciation to a zero book value over the life of the machine. Machine A has a cost of $487,000, annual operating costs of $29,000, and a 6-year life. Machine B costs $315,000, has annual operating costs of $51,200, and a 4-year life. The firm currently pays no taxes. Which machine should be purchased and why

Sagot :

Thanks for using our platform. We aim to provide accurate and up-to-date answers to all your queries. Come back soon. Thanks for stopping by. We strive to provide the best answers for all your questions. See you again soon. Thank you for visiting Westonci.ca, your go-to source for reliable answers. Come back soon for more expert insights.

Select the correct answer from each drop-down menu.The boundary of the lawn in front of a building is represented by the parabola [tex]\( y=\frac{x^2}{16}+x-2 \

If [tex]$ r(x) = 2 - x^2 $[/tex] and [tex]$ w(x) = x - 2 $[/tex], what is the range of [tex]$ (w \circ r)(x) $[/tex]?A. [tex]$(- \infty, 0]$[/tex]B. [te

Which of the following is NOT a multivalent ion?A. [tex]$ Ag^{+} $[/tex]B. [tex]$ Cr^{3+} $[/tex]C. [tex]$ Sb^{5+} $[/tex]D. [tex]$ Cu^{+} $[/tex]

A paving contractor, incorporated in Delaware with its principal place of business in Indiana, was hired to oil and chip streets in a mobile home park located i

A(n) _____ is a clinical professional who cares for patients when they are healthy, sick, or injured. 1) Doctor, paramedic 2) Nurse, anesthesiologist 3) Surgeon

Consider the unbalanced equation for the oxidation of aluminum:[tex]\[ \_\_ \text{Al} + \_\_ \text{O}_2 \rightarrow \_\_ \text{Al}_2\text{O}_3 \][/tex]Which seq

Points: 0 of 1The Continental Bank made a loan of [tex]$26,000.00 on March 10 to Dr. Hirsch to purchase equipment for her office. The loan was secured by a dema

On his first day of school, Kareem found the high temperature to be [tex]$76.1^{\circ}$[/tex] Fahrenheit. He plans to use the function [tex]\(C(F)=\frac{5}{9}

In order for the data in the table to represent a linear function with a rate of change of –8, what must be the value of a?

Convert 1500 micro meters to meters

Kolawole845 Kolawole845 · Answer 1 · 2021-04-12T20:32:29-04:00

Answer:

Machine A should be purchased because it has a lower equivalent annual cost . Hence, it is cheaper.

Explanation:

Equivalent Annual cost is the Present Value of the total cost over the investment period divided by the appropriate annuity factor.

Step 1 : Equivalent Annual cost of Machine A

PV of cash flows

PV of purchase cost = 487,000

PV of annual operating cost of $29,000

= 29,000× (1-(1+0.14)^(-6))/0.14

= 112,771.35

Total PV = 487,000 + 112,771.35= 599,771.35

Equivalent annual cost = 599,771.35 /3.889

Equivalent annual cost = 154,235.70

Step 2: Equivalent Annual cost of Machine B

PV of purchase cost = 315,000

PV of annual operating cost of $51,200

= 51,200× (1-(1+0.14)^(-4))/0.14

= 149,182.07

Total PV = 315,000+ 149,182.07

= 464,182.07

Equivalent annual cost = 464,182.07/2.9137

Equivalent annual cost = 159,309.51

Step 3: Compare equivalent Annual cost

Comparing the two equivalent costs, we conclude that Machine A should be purchased because it has a lower equivalent annual cost and therefore it is cheaper.

Sagot :

Other Questions