Practice questions

These are questions from previous years' exams and midterms. They do not reflect the questions I will ask, but should be suitable for practice.

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.. question::

A small aerospace company is evaluating two alternatives: the purchase of an automatically fed machine or a manually fed machine. All projects in the company are expected to return at least 10% (before tax).

The auto-fed machine has an initial cost of $23,000, an estimated salvage value of $4000 and a predicted life of ten years. The expected production rate is 8 tons per hour, and the operating costs are $12 per hour. The annual maintenance cost is expected to be $3500.

The manually fed machine has a purchase price of $8000, 0 salvage value, a 5-year life and a production rate 6 tons per hour. The operating costs are $24 per hour, and the annual maintenance cost is $1500.

Some additional information # Both machines produce product using the same feed material and energy, and they both produce products with the same value. # There is no delay between ordering the machine and placing it in operation. # We assume that the production (ton/year) will be the same every year # The project has a ten-year life.

How many tons per year must be produced in order to justify the higher purchase cost of the auto-fed machine? You may analyze this problem using a before tax approach (without considering taxes or depreciation).

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