Exam 6: Comparison and Selection Among Alternatives

A medical mobility equipment manufacturer is considering two alternatives as part of an upgrade of its power wheelchairs assembly. Alternative A has an installed cost of $10,000, net annual revenue of $6000, and a useful life of 3 years. Alternative B has an installed cost of $20,000, net annual revenue of $6350 and a useful life of 6 years. At the end of year 3, alternative A would be replaced with another alternative A having the same installed cost and net annual revenues. If the MARR is 8% per year, which alternative if any) should be selected based on the present worth method? Assume negligible salvage value.

A manufacturing company is deciding between three maintenance plans for a new waste management system. Plan A needs a single prepayment of $59,000 at the beginning of the year and the contract needs to be renewed every 3 years. Plan B is a two- year contract and requires a payment of $19,470 at the end of year 1 and another payment of $20,060 at the end of year 2. Plan C provides a three- year services with two payments of $29,500 made at the end of years 1 and 3. Which maintenance plan should be selected based on the present worth method? Assume the company uses a MARR of 11% and a study period of 6 years.

VB Flantronics Inc. is a company that designs, makes, and sells computer and home entertainment sound systems, along with a line of headphones and microphones for personal digital media. The company is trying to decide whether it should purchase or lease a building for its manufacturing and research- and- development operation in China. If the building is leased, a payment will have to be made at the beginning of each year. The estimated costs are the following: Which alternative should be recommended based on the present worth method? Use a MARR of 9%.

Cassandra sets up a savings plan for her retirement. She plans to make a quarterly payment of $3250 into a savings account that earns 11% per year, compounded quarterly. After 3 years, she will have an option to continue making $3250 quarterly payments or to switch to an annual savings plan that earns higher interest of 11.25% per year and requires annual payments of $13,000. If she plans to retire 13 years from now, which option will offer more money in the savings plan at that time?

Two structural designs for a large public monument in Indonesia are under evaluation. Use the repeatability assumption and the CW method to determine which design should be selected if the service period of the monument is indefinite and the interest rate is 2% per year.

Consider the three mutually exclusive alternatives below. Determine which alternative is preferable at an interest rate of 9% per year.

A textile company is considering opening a production and shipping facility in Dallas to keep up with demand for its pillows. The 105,000- square- foot facility, if purchased, will require an initial investment of $255,000 and an annual operating cost of $68,500. It will have a $80,000 salvage value after 8 years. Alternatively, the facility can be leased with annual rent of $51,000 in year 1 and increasing by $1000 per year. If the company's minimum attractive rate of return is 6% per year, compounded quarterly, should the facility be purchased or leased?