Old Southwest Canning Co. has determined that any one of four machines can be used in its chili-canning operation. The cost of the machines are estimated below, and all machines have a 5-year life. If the minimum attractive rate of return is 25% per year, determine which machine should be selected on the basis of a rate of return analysis.
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Rank cost alternatives by increasing initial investment: 1, 3, 4, 2
3 to 1: 0 = -4000 + 1000(P/A,?i*,5)
?i* = 7.93% < MARR of 25% Eliminate 3
4 to 1: 0 = -5000 + 2000(P/A,?i*,5)
?i* = 28.65% > MARR of 25% Eliminate 1
2 to 4: 0 = -18,000 + 6000(P/A,?i*,5)
?i* = 19.86% < MARR of 25% Eliminate 2
Select machine 4
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