A company is considering automating a certain process. It has two alternatives:
Machine A has an initial cost of $ 24,000, a residual value of $ 5,000 and a useful life of 10 years. This machine requires an operator that earns $ 16 / hour and has the capacity to make 8 tons per hour. It has an operating cost of $ 4,000 per year.
Machine B has an initial cost of $ 10,000, a residual value of 0 and a useful life of 5 years. This machine requires three operators that earn $ 10 / hour per operator and has the capacity to make 6 tons per hour. It has an operating cost of $ 2,000 per year.
a. If a minimum yield of 12% per annum is required. How many tons per year (n) must be produced so that both alternatives are equivalent in cost?
b. Draw a graph of cost versus tons per year (n).