Homework # 3
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Homework3.docxENGR 610
HOMEWORK # 3
The owner of the Company where you are employed intends to purchase a new piece of machinery to increase productivity over the next 10 years in response to a forecasted increase in market demand. She is considering two candidates, Machine A and Machine B, for which she gives you the following data:
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Cash Flow Items |
Machine A |
Machine B |
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Price |
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20,000 |
35,000 |
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O&M (per yr) |
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500 |
700 |
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G for O&M |
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75 |
90 |
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Generated Profit ( per yr) |
3,000 |
5,500 |
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G for Generated Profit |
500 |
(50) |
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Salvage Value |
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2,000 |
3,000 |
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Useful Life |
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5 |
10 |
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Additionally, she told you that she intends to maximize the NPW of the investment and that she does not intend to spend on maintenance during the last year of use of the selected machine.
Questions:
1. Graph the NPWs of the two opportunities as i changes from 1% to 10%.
2. What should the owner do if she could secure an interest rate i=3%?
3. What should the owner do if she could secure an interest rate i=7%?
