Question

DelRay Foods must purchase a new gumdrop machine. Two machines are available. Machine 7745 has a first cost of $10,000, an estimated life of 10 years, a salvage value of $1,000, and annual operating costs estimated at $0.01 per 1,000 gumdrops. Machine A37Y has a first cost of $8,000, a life of 10 years, and no salvage value. Its annual operating costs will be $300 regardless of the number of gumdrops produced. MARR is 6%/year, and 30 million gumdrops are produced each year.What is the future worth of each machine?Machine 7745: $______________Entry field with incorrect answerMachine A37Y: $_______________Entry field with incorrect answer

Answer 1

Answer:

MACHINE 7745: -20,862.72

MACHINE A37Y: -18,281.02

Explanation:

production: 30,000,000

Machine 1

cost 10,000

life 10 years

salvage value 1,000

operating cost 0.01 per 1000 units. 0.01 x 30,000,000/1,000 = 300

Minimun accepted rate of retrun 6%

Future value of the Operating cost

$C \time \frac{(1+r)^{time} -1}{rate} = FV$

C = 300

r = 0.06

time = 10

$300 \time \frac{(1+0.06)^{10} -1}{0.06} = FV$

FV  -$3,954.24

Future Value of the Investment

$Principal \time (1+ r)^{time} = Amount$

$10,000\time (1+ 0.06)^{10} = -17,908.48$

Total -17,908.48 - 3,954.24 + 1,000 = -20,862.72

Machine 2

8,000

life 10 years

no salvage value

operating cost 300

FV of the operating cost:  - 3,954.24

FV of the Investment:        -14,326.78

$8,000\time (1+ 0.06)^{10} = -14,326.78$

Total: -3,954.24 - 14,326.78 = -18,281.02

Edit: sorry but the math toll is not working as it should be =(