Define benefits and m&o costs happen annually

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Reference no: EM13202519

The following costs are associated with two new peanut picker machines being considered for use:

Data PIK-M-UP CARTER'S
Life, Years 5 10
First Cost $130,000 $350,000
Salvage Value 12,000 45,000
Benefits 67,000 82,000
M&O Costs 9,000 13,000
M&O Gradient 700 1,100

The company interest rate (MARR) is 15%. The company will make a down payment of 25% of the first cost for the Pick-M-Up and 15% of the first cost for Carter's. The loan will have an annual effective interest rate of 10% with annual payments. The length of the loan will be equal to the life of the machine. Use net present worth analysis to decide which machine should be purchased.

Hint: Benefits and M&O Costs happen annually. The M&O gradients start at 0 at the end of first year and the increase by the value of the gradient.

Reference no: EM13202519

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