Question: A company is considering purchasing a new machine to improve one of its current production lines. Two types of machines are available on the market.

A company is considering purchasing a new machine to improve one of its current production lines. Two types of machines are available on the market. The lives of the machine Alpha and machine Gamma is difference, but the company plan only use the service of either machine not more than five years. The cost element of both machines listed in table C below. The company always has another option: leasing a machine at RM3,000 per year which is fully maintained by the leasing company.

Item Machine Alpha Machine Gamma
First Cost, RM 6,500 8,500
Annual Operating Cost, RM 800 520
Component Overhaul 200 every 3 years 280 every 4 years
Change Filter every year 100 None
Useful Life, years 4 6
Salvage Value, RM 600 1,000

i. Suggest how many decisions alternatives to the company. ii. Recommend which decisions appears to be the best at MARR is 10%.

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