Four different machines were under consideration for materials flow improvement on a drug bottling line. An engineer performed the economic analysis to select the best machine, but some of his calculations were removed from the report by a disgruntled employee. All machines are assumed to have a 10?year life.
(a) Fill in the missing values in the comparison table.
(b) Select the best machine at MARR = 18% per year, provided one must be chosen.
 FIGURE 1.png)
(a) Initial cost, Machine 1: - 60,000 - (-16,000) = $-44,000
Overall ROR, Machine 2: 0 = -60,000 + 16,000(P/A,i*,10); i* = 23.41%
Incremental investment, 3 vs. 2: -72,000 - (-60,000) = $-12,000
Incremental cash flow: 4 vs. 3: 24,000 – 19,000 = $5000
Incremental ROR 3 vs. 2: 0 = -12,000 + 3000(P/A,?i*,10); ?i* = 21.41%
Incremental ROR 4 vs. 3: 0 = -26,000 + 5000(P/A,?i*,10); ?i*= 14.08%
(b) Machines are ranked according to initial investment: 1, 2, 3, 4; MARR = 18%
Compare 1 to DN: i* = 18.6% > MARR eliminate DN
Compare 2 to 1: ?i* = 35.7% > MARR eliminate 1
Compare 3 to 2: ?i* = 21.41% > MARR eliminate 2
Compare 4 to 3: ?i* = 14.08% < MARR eliminate 4
Select Machine 3
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