Deciding Between New Equipment Options
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A refuse recycling operation is considering installing some additional magnetic sorting equipment which will protect the processing equipment from damage. Three alternative systems have been identified, each of which is estimated to save the company $1,200 each year. The lifetime of each alternative is estimated to be 15 years. Alternative A will cost $4,000 to purchase with annual estimated maintenance costs of $700. Alternative B will have an initial cost of $6,000 and annual maintenance of $500. The initial cost of alternative C is $8,000 with $250 annual maintenance. MARR is 8%.
Complete the following statements:
1. The rate of return of Alternative A is:
2. The incremental rate of return for the increment (B-A) is:
3. The incremental rate of return for the increment (C-A) is:
Answer the following questions:
4. Which is the best of the three alternatives A, B or C?
5. Should the company invest in this equipment?
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A refuse recycling operation is considering installing some additional magnetic sorting equipment which will protect the processing equipment from damage. Three alternative systems have been identified, each of which is estimated to save the company $1,200 each year. The lifetime of each alternative is estimated to be 15 years. Alternative A will cost $4,000 to purchase with annual estimated maintenance costs of $700. Alternative B will have an initial cost of $6,000 and annual maintenance of $500. The initial cost of alternative C is $8,000 ...
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