Reference no: EM132083476
Machine A costs $350,000 to purchase, result in electricity bills of $100,000 per year, and last for 10 years. Machine B costs $550,000 to purchase, result in electricity bills of $80,000 per year, and last for 15 years. The discount rate is 12%.
What are the equivalent annual costs for two models?
Which model is more cost-effective?
cost
electricity bill $
years
Discount rate
Machine A
350,000
100,000
10
12%
Machine B
550,000
80,000
15
12%
c= r*(NPV)/1-(1+r)-n
R= discount rate
NPV= net persent value
N= length of investment
Machine A:
C= r(NPV)/ 1-(1+r)-n= 12(350,000) / 1-(1+100,000)-10
Machine B:
C= r(NPV)/ 1-(1+r)-n=12(550,000)/ 1(1+80,000)-15
This is all I have so far. I know that I am to figure out the amount of money for the years.
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