Describe the pw method

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Question: Use the PW method to select the better of the following alternatives:

Annual                                Defender:                             Challenger:
Expenses                           Alternative A                          Alternative B
Labor                                  $300,000                              $250,000
Material                                 250,000                               100,000
Insurance and                       4% of initial                              None

property taxes                 capital investment
Maintenance                        $8,000                               None
Leasing cost                          None                            $100,000

Assume that the defender was installed five years ago. The MARR is 10% per year. (9.7) Definition of alternatives: A: Retain an already owned machine (defender) in service for eight more years. B: Sell the defender and lease a new one (challenger) for eight years. Alternative A (additional information): Cost of defender five years ago = $500,000 BV now = $111,550 Estimated MV eight years from now = $50,000 Present MV = $150,000.

Reference no: EM131506950

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