Poly-Chem Plastics is considering two types of injection molding machines-hydraulic and electric. The hydraulic press (HP) will

Question:

Poly-Chem Plastics is considering two types of injection molding machines-hydraulic and electric. The hydraulic press (HP) will have a first cost of $600,000, annual costs of $200,000, and a salvage value of $70,000 after 5 years. Electric machine technology (EMT) will have a first cost of $800,000, annual costs of $150,000, and a salvage value of $130,000 after 5 years.

(a) Use an AW-based rate of return equation to determine the ROR on the increment of investment between the two.

(b) Plot the AW versus i graph for each alternative's cash flows, and utilize it to determine the largest MARR that will justify the EMT extra investment of $200,000.

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... MARR
Minimum Acceptable Rate of Return (MARR), or hurdle rate is the minimum rate of return on a project a manager or company is willing to accept before starting a project, given its risk and the opportunity cost of forgoing other...