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You are required to evaluate two systems. The cost of a used system is $75,000. Through...

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Accounting

You are required to evaluate two systems. The cost of a usedsystem is $75,000. Through a new system, labor hours can bedecreased by 20% as compared to the used system. The cost of a newsystem is $150,000. Both systems have a useful life of five years.According to estimations, the market value of the used system willbe $20,000 in five years, and the market value of the new systemwill be $50,000 in five years. The used system has to operate 8hours per day for 20 days per month. If labor costs $40 per hourand the MARR is 1% per month, which system should berecommended?

Answer & Explanation Solved by verified expert
4.4 Ratings (692 Votes)
For evaluating our decision we should evaluate PW Present Worth of both systems ie PW of New System and PW of Used System We should select the alternative which has minimum cost Given MARR 1 per    See Answer
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