Makes the two alternatives equivalent

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Reference no: EM131204865

Kiwidale Dairy is considering purchasing a new ice-cream maker. Two models, Smoothie and Creamy, are available and their information is given below. (a) What is Kiwidale’s MARR that makes the two alternatives equivalent? Use a present worth comparison.

Smootie / Creamy

First cost $15 000 / $36 000

Service life 12 years / 12 years

Annual profit $4200 / $10 800

Annual operating cost $1200 / $3520

Salvage value $2250 / $5000

(b) It turned out that the service life of Smoothie was 14 years. Which alternative is better on the basis of the MARR computed in part (a)? Assume that each alternative can be repeated indefinitely.

Reference no: EM131204865

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