The manager of a canned-food processing plant has two labeling machine options. On the basis of a rate of return analysis with a MARR of 20% per year, determine (a) which model is economically better, and (b) if the selection changes, provided both options have a 4-year life and all other estimates remain the same.
 FIGURE 1.png)
(a) 0 = -10,000 + 1200(P/A,?i*,4) + 12,000(P/F,?i*,2) + 1000(P/F,?i*,4)
Solve for ?i* by trial and error or spreadsheet
?i* = 30.31% > MARR = 20% (spreadsheet)
Select Model 200
(b) If n105 = 4 years, the incremental ROR equation changes to
0 = -10,000 + 1200(P/A,?i*,4) + 1000(P/F,?i*,4)
?i* = -17.22%
Select Model 105; the incremental investment is definitely not economical
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