A company is studying two different production methods to produce its product. Both production methods have the same life and the same maintenance and repair record.

• Production Method 1: costs $120,000 and uses 20 gallons per hours of operation.
• Production Method 2: costs $175,000 and uses 18 gallons per hours of operation at the same level of production.

Both production methods have four-year lives before any major overhaul is required and the 10% of initial its cost as a salvage value. The fuel currently costs $2.40

The fuel consumption is expected to increase 1gallon/hr. every year because of degrading engine efficiency and fuel costs is expected to increase at the rate of 5% per year.

Required:

Assume 5,000 hours of operation per year and a MARR of 12%. Use the AE criterion.

2. Summarize the Net Cash Flow of Production Method 1 in table format.
4. Summarize the Net Cash Flow of Production Method 2 in table format

Answer rating: 100% (QA)

To summarize the net cash flow of Production Method 1 and Production Method 2 we need to calculate t... View the full answer