A company has already identified machine A and determined the economic life as four years by assuming 15% interest rate. The annual equivalent total cost corresponding to the economic life is Rs. 2,780. Now, the manufacturer of machine B has approached the company. Machine B, which has the same capacity as that of machine A, is priced at Rs. 6,000. The maintenance cost of machine B is estimated at Rs. 1,500 for the first year and an equal yearly increment of Rs. 300 thereafter. If the money is worth 15% per year, which machine should be purchased? (Assume that the scrap value of each of the machines is negligible at any year.)
A company has already identified machine A and determined the economic life as four years by assuming 15% interest rate. The annual equivalent total cost corresponding to the economic life is Rs. 2,780. Now, the manufacturer of machine B has approached the company. Machine B, which has the same capacity as that of machine A, is priced at Rs. 6,000. The maintenance cost of machine B is estimated at Rs. 1,500 for the first year and an equal yearly increment of Rs. 300 thereafter. If the money is worth 15% per year, which machine should be purchased? (Assume that the scrap value of each of the machines is negligible at any year.)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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