Four mutually exclusive alternatives with different reject rates and expenses are being investigated by the plant...

 

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Four mutually exclusive alternatives with different reject rates and expenses are being investigated by the plant manager. Their relevant costs and useful lives are summarized as follows: Factor Alternative Initial Investment Maintenance Cost Labor Cost Salvage Value Reject Rate Selling Price/Unit Scrap Price/Unit Useful Lives Machine A P 350,000 21,300 20,250 210,000 0.6% 2.00 1.25 5 Machine B P 250,000 19,780 20,300 90,000 9.5% 2.00 1.25 5 Machine C P 300,000 18,800 21,000 160,000 4.0% 2.00 1.25 5 Machine D P 380,000 24,250 23,000 218,000 0.3% 2.00 1.25 5 Maintenance, and Labor costs are annual recurring costs, while Selling prices and scrap values are assumed to remain the same throughout the study period. Materials costs were assumed to be the same for all alternative machines, and are not considered relevant. Planned annual output is 120,000 units, and conditions warrant the belief that all units produced (and scrapped) can be converted to revenue. If the MARR is 15% per year, and the study period is 15 years (not just five years), which machine should be recommended? Use the incremental IRR comparison method (30 points) Four mutually exclusive alternatives with different reject rates and expenses are being investigated by the plant manager. Their relevant costs and useful lives are summarized as follows: Factor Alternative Initial Investment Maintenance Cost Labor Cost Salvage Value Reject Rate Selling Price/Unit Scrap Price/Unit Useful Lives Machine A P 350,000 21,300 20,250 210,000 0.6% 2.00 1.25 5 Machine B P 250,000 19,780 20,300 90,000 9.5% 2.00 1.25 5 Machine C P 300,000 18,800 21,000 160,000 4.0% 2.00 1.25 5 Machine D P 380,000 24,250 23,000 218,000 0.3% 2.00 1.25 5 Maintenance, and Labor costs are annual recurring costs, while Selling prices and scrap values are assumed to remain the same throughout the study period. Materials costs were assumed to be the same for all alternative machines, and are not considered relevant. Planned annual output is 120,000 units, and conditions warrant the belief that all units produced (and scrapped) can be converted to revenue. If the MARR is 15% per year, and the study period is 15 years (not just five years), which machine should be recommended? Use the incremental IRR comparison method (30 points)

Answer rating: 100% (QA)

SOLUTION STEP 1 STEP 2 NB depreciation is not considered a... View the full answer