Engineering Board Exam Reviewer · Present Worth Analysis · hard
Machine A costs P40,000, lasts 4 years, has a salvage value of P5,000, and annual costs of P8,000. Machine B costs P70,000, lasts 6 years, has a salvage value of P10,000, and annual costs of P5,000. Using a 12-year study period with identical replacements and 10% interest, find the present worth of cost of the better machine.
- P134,750.59
- P61,943.86
- P133,149.61
- P86,131.56
Answer
C. P133,149.61
Solution
Use the least common multiple of the lives (12 years). Machine A is bought at years 0, 4, 8 with salvage at years 4, 8, 12: PWA=P133,149.61. Machine B is bought at years 0 and 6 with salvage at years 6 and 12: PWB=P134,750.59. The lower cost is P133,149.61.
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