2. You were asked by the Manager of Engineering to propose a solution for a current...

 

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2. You were asked by the Manager of Engineering to propose a solution for a current production line problem. After analyzing the issues you came up with two solutions, both of which will solve the problem for the next five years. Solution A would initially cost $90,000, have annual O&M costs of $22,000 and will generate annual savings of $48,000, while solution B will need an initial $62,000, $17,000 for annual O&M costs, and will generate annual savings of $36,000. Both will have salvage values, $15,000 for solution A, and $10,000 for B. Your company's marginal income tax rate is 40%, and its MARR is 10%. The proposed equipment for both options is subject to a five-year MACRS property class. Answer the following questions: a) Which option would you recommend? Show the work that backs your choice. (14 points) b) What value of MARR would make each solution break even? (5 points) c) What would be the amount of additional revenue that Solution A should generate to make the Manager of Engineering indifferent to the choice between the two options? (6 points) 2. You were asked by the Manager of Engineering to propose a solution for a current production line problem. After analyzing the issues you came up with two solutions, both of which will solve the problem for the next five years. Solution A would initially cost $90,000, have annual O&M costs of $22,000 and will generate annual savings of $48,000, while solution B will need an initial $62,000, $17,000 for annual O&M costs, and will generate annual savings of $36,000. Both will have salvage values, $15,000 for solution A, and $10,000 for B. Your company's marginal income tax rate is 40%, and its MARR is 10%. The proposed equipment for both options is subject to a five-year MACRS property class. Answer the following questions: a) Which option would you recommend? Show the work that backs your choice. (14 points) b) What value of MARR would make each solution break even? (5 points) c) What would be the amount of additional revenue that Solution A should generate to make the Manager of Engineering indifferent to the choice between the two options? (6 points)

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Answer A As the Higher NPV ought to be picked in this Inquiry Answer 2 w... View the full answer