An industrial engineer at a fiber-optic manufacturing company is considering two robots to reduce costs in a

Question:

An industrial engineer at a fiber-optic manufacturing company is considering two robots to reduce costs in a production line. Robot X will have a first cost of $82,000, an annual maintenance and operation (M&O) cost of $30,000, and salvage values of $50,000, $42,000, and $35,000 after 1, 2, and 3 years, respectively. Robot Y will have a first cost of $97,000, an annual M&O cost of $27,000, and salvage values of $60,000, $51,000, and $42,000 after 1, 2, and 3 years, respectively. Which robot should be selected if a 2-year study period is specified at an interest rate of 15% per year and replacement after 1 year is not an option?

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...