Dickson Co. has asked you to help the select a backhoe. You have a choice between a wheel-mounted version which costs $50,000 and has a life of 5 yrs with a salvage value of $3,000 or a track mounted version which costs $80,000 and has a life of 8 yrs with a salvage value of $5,000. Both machines will have the same productivity and operating costs. If the MARR is 10% which machine will you recommend?

The wheel mounted version should be purchased because it has lower equivalent annual cost

Explanation:

To determine which back hole is better, we will compare the the equivalent annual cost of the two and then select the lower of the two:

Equivalent annual cost = Present value of cost /Annuity factor

Present value of Wheel mounted

PV of salvage value = 3,000 × 1.1^(-5)= $1862.76

Total present value = 50,000 + $1862.76 =

Annuity factor = (1-1.1^(-5)/0.1) = 3.790786769

Equivalent annual cost =51862.76/ 3.7907 = $13,681.26

Present Value f Track mounted version =

PV of salvage value = 2,332.536901

Annuity factor =( 1-1.1^(-8)/0.1) = 5.334926

Total present value of cost = 80,000 + 2,332.536901 = 82332.5369

Equivalent annual cost =82,332.53 /5.33492=$15,432.741

Equivalent annual cost of wheel mounted  =$ 13,681.26

Equivalent annual cost of track mounted=$15,432.741

The wheel mounted version should be purchased because it has lower equivalent annual cost

these are the four factors that influence enterpreneurship development

1. economic development

2. culture

3.technological development

4. education

answer; personality;