The two machines shown are being considered for a chip manufacturing operation. Assume the MARR is a real return of 12% per year and that the inflation rate is 7% per year. Which machine should be selected on the basis of an annual worth analysis if the estimates are in (a) constant-value dollars, and (b) future dollars? Solve by hand and using a spreadsheet.
 FIGURE 1.png)
By hand:
(a) For CV dollars, use i = 12% per year
AWA = -150,000(A/P,12%,5) – 70,000 + 40,000(A/F,12%,5)
= -150,000(0.27741) – 70,000 + 40,000(0.15741)
= $-105,315
AWB = -1,025,000(0.12) – 5,000
= $-128,000
Select machine A
(b) For then-current dollars, use if
if = 0.12 + 0.07 + (0.12)(0.07) = 0.1984 (19.84%)
AWA = -150,000(A/P,19.84%,5) – 70,000 + 40,000(A/F,19.84%,5)
= -150,000(0.3332) – 70,000 + 40,000(0.1348)
= $-114,588
AWB = -1,025,000(0.1984) – 5,000
= $-208,360
Select machine A, now by a larger margin
Spreadsheet: Select A in both cases; the difference in AW values is larger for future dollars
 ANSWER.png)
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