DelRay Foods must purchase a new gumdrop machine. Two machines are available. Machine 7745 has a first cost of $8,200, an estimated life of 10 years, a salvage value of $1,000, and annual operating costs estimated at $0.01 per 1,000 gumdrops. Machine A37Y has a first cost of $8,000, a life of 10 years, and no salvage value. Its annual operating costs will be $280 regardless of the number of gumdrops produced. MARR is 6%/year, and 30 million gumdrops ware produced each year.
a. What is the annual worth of each alternative?
Machine 7745 AW= $
Machine A37Y AW= $
b. What is the decision rule for determining the preferred machine based on annual worth ranking?
c. Which machine should be recommended?