Reference no: EM132577916

Please solve it with clear steps, if you can in paper it is better

To produce a certain product, there are two competing processes under consideration. Process A requires acquisition of a new machine that is estimated to have an initial cost of $30,000 and a salvage value of $12,000 at the end of its useful life of 6 years. In addition, the process requires a fixed cost of $47,000 per year and a variable cost of $250 per day. Alternatively, Process B requires the use of human labor. The process will need 6 workers, each earning $100 per day and will have a fixed cost of $20,000 per year and additional variable costs of $200 per day.

a) Draw the cash flow diagrams of each alternative process.

b) Discuss which equivalent worth method(s) may be appropriate to use in the solution of the problem. Express the assumption(s) you should make.

c) State the factor of interest to consider for this problem.

d) Determine the minimum number of days per year required for the two processes to break even at an interest rate of 2% per year. Note that you should explicitly write down your formulation using engineering formulations.

e) If company predicts to produce this product no more than 90 days a year, which process to choose do you recommend to the company? Explain.