Question

Alpha Electronics can purchase a needed service for $80 per unit. The same service can be provided by equipment that costs $100,000 and that will have a salvage value of zero at the end of 10 years. Annual operating costs for the equipment will be $7,000 per year plus $35 per unit produced. MARR is 14.0%/year. What is the future worth of the equipment if the expected production is 200 units/year?

Answer 1

The question deals with the calculation of future worth of equipment for Alpha Electronics considering production costs, lifespan, and MARR. The purpose is to compare investing in equipment versus purchasing the service.

Step-by-step explanation:

The student's question is concerned with the future worth of equipment used for a service that can be provided by Alpha Electronics. The company has a choice of purchasing the service at $80 per unit or investing in equipment that costs $100,000 with an annual operating cost of $7,000 and an additional $35 per unit produced.

The equipment's lifespan is stated to be 10 years with a salvage value of zero. Expected production is 200 units per year and the Minimum Attractive Rate of Return (MARR) is 14.0% per year. To find the future worth, we need to calculate the future value of the annual operating costs and the cost of production per unit over the 10-year period, and then compare this to the future value of purchasing the services directly.