Problem: 1) Ridgley Custom Metal Products (RCMP) must purchase a new tube bender. RCMP's MARR is 11%. They are considering two models.
|
Model
|
First Cost
|
Economic Life
|
Yearly Net Savings
|
Salvage Value
|
|
T
|
$100000
|
5 years
|
$50000
|
$20000
|
|
A
|
$150000
|
5 years
|
$60000
|
$30000
|
a) Using the present worth method, which tube bender should they buy?
b) RCMP has discovered a third alternative, which has been added to the table. Now which tube bender should they buy?
|
Model
|
First Cost
|
Economic Life
|
Yearly Net Savings
|
Salvage Value
|
|
T
|
$100000
|
5 years
|
$50000
|
$20000
|
|
A
|
$150000
|
5 years
|
$60000
|
$30000
|
|
X
|
$200000
|
3 years
|
$75000
|
$100000
|
2) RCMP (pertaining to the first problem in part b) can forecast demand for its products for only three years in advance. The salvage value after three years is $40000 for model T and $80000 for model A. Using the study period method, which of the three alternatives is best?