Hello! Here is the problem...
Allied Electrons must purchase a new automatic soldering machine to meet increased demand for its electronic goods. Of all the machines considered, management has narrowed the choices to the following three mutually exclusive machines. Allied uses a planning horizon of four years (all three can last this long) and a MARR of 10%. The initial cost is at (year 0) and the payments are in years 1-4. Determine the present worth, future worth, and annual worth for when the salvage value is in year 4.
Initial Cost (in Year 0) $800,000
Annual Operating Cost $50,000
Salvage value (in year 4) $40,000
MARR 10%
Period 4 years
I only showed calculations for 1 machine since I figure the calculation methods would be the same for each machine. I first created a table to show cash flow for each year and then calculated the PW of this cash flow, which is below. Then using the PW answer I calculated my FW. To calculate annual worth, I used the salvage value as my future value. I am just wondering if I calculated these correctly? I wasnt exactly sure whether to use my own Calculated FV ($1.3M) or use the salvage value ($40K) in order to calculate my annual worth. Any assistance/explanation would be appreciated. Thanks.
Year Cash Flow
0 (800,000.00)
1 (50,000.00)
2 (50,000.00)
3 (50,000.00)
4 (10,000.00)
PW (931,172.73) I also calculated this using our interest tables (in the book) and calculated the PW to be (931,173.10).
FV ($1,363,330.00)
AW ($310,995.48)
Allied Electrons must purchase a new automatic soldering machine to meet increased demand for its electronic goods. Of all the machines considered, management has narrowed the choices to the following three mutually exclusive machines. Allied uses a planning horizon of four years (all three can last this long) and a MARR of 10%. The initial cost is at (year 0) and the payments are in years 1-4. Determine the present worth, future worth, and annual worth for when the salvage value is in year 4.
Initial Cost (in Year 0) $800,000
Annual Operating Cost $50,000
Salvage value (in year 4) $40,000
MARR 10%
Period 4 years
I only showed calculations for 1 machine since I figure the calculation methods would be the same for each machine. I first created a table to show cash flow for each year and then calculated the PW of this cash flow, which is below. Then using the PW answer I calculated my FW. To calculate annual worth, I used the salvage value as my future value. I am just wondering if I calculated these correctly? I wasnt exactly sure whether to use my own Calculated FV ($1.3M) or use the salvage value ($40K) in order to calculate my annual worth. Any assistance/explanation would be appreciated. Thanks.
Year Cash Flow
0 (800,000.00)
1 (50,000.00)
2 (50,000.00)
3 (50,000.00)
4 (10,000.00)
PW (931,172.73) I also calculated this using our interest tables (in the book) and calculated the PW to be (931,173.10).
FV ($1,363,330.00)
AW ($310,995.48)