Minicase 8 Part 2
Answer
All of the measures described in the summary table are not appropriate although we can start the analysis with NPV calculations.
1) The net present value calculations show that the Skilboro machine has greater NPV than Munster machine. This is also not an appropriate measure, which can be explained with the following calculations; Munster machines Present Value = C * i $2.40 million = C .15 $2.40 = C *annuity factor (15%, 7 years) $2.40 = C *4.160 C = $2.40 / 4.160 =.57692 million Skilboro machines Present Value = C * i $2.56 million = C .15 $2.56 = C *annuity factor (15%, 10 years) $2.56 = C *5.019 C = $2.56 / 5.019 =.51007 million Therefore Muster machines are preferred
Another way to make comparison is by the calculation of annuity based on the cost of the two machines
Munster machines Present Value = C * i $8 million = C .15 $8 = C *annuity factor (15%, 7 years) $8 = C *4.160 C = $8 / 4.160 =1.923 million Skilboro machines
For the Skilboro machine reduction in the material and operating cost is the decrease in the
All of the measures described in the summary table are not appropriate although we can start the analysis with NPV calculations.
1) The net present value calculations show that the Skilboro machine has greater NPV than Munster machine. This is also not an appropriate measure, which can be explained with the following calculations; Munster machines Present Value = C * i $2.40 million = C .15 $2.40 = C *annuity factor (15%, 7 years) $2.40 = C *4.160 C = $2.40 / 4.160 =.57692 million Skilboro machines Present Value = C * i $2.56 million = C .15 $2.56 = C *annuity factor (15%, 10 years) $2.56 = C *5.019 C = $2.56 / 5.019 =.51007 million Therefore Muster machines are preferred
Another way to make comparison is by the calculation of annuity based on the cost of the two machines
Munster machines Present Value = C * i $8 million = C .15 $8 = C *annuity factor (15%, 7 years) $8 = C *4.160 C = $8 / 4.160 =1.923 million Skilboro machines
For the Skilboro machine reduction in the material and operating cost is the decrease in the