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.