Invested capital before income tax considerations

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A manufacturing company is considering purchasing a 10 HP electric motor which it estimates will run an average of 6 hours per day for 250 days per year. Past experience indicates that: (1) its annual cost for taxes and insurance averages 2.5% of first cost, (2) it must make 10% on invested capital before income tax considerations, and (3) it must recover capital invested in machinery within 5 years. Two motors are offered to the company. Motor A costs $ 340 and has a guaranteed efficiency of 85% at the indicated operating load. Motor B costs $290 and has a guaranteed efficiency of 80% at the same operating load. Electric energy costs the company 2.3 cents per KW-hr. Calculate the annual cost of each motor and indicates which motor should be purchased. 1 HP = 746 watts

Reference no: EM13830790

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