Problem
The City of Lubbock has decided to buy a new snow removal machine to avert the occasional snowpocalypse. Thus, the city of Lubbock decided to buy a new snow removal machine. The officials can choose between two different machines:
• The Blizzard has a $70,000 first cost, a 20-year life, and $8,000 salvage value. At the end of 9 years, it will need a major overhaul costing $9,000. Annual maintenance and operating costs are $9,000.
• The Snow Mower will cost $50,000, has an expected life of 10 years, and has no salvage value. The annual maintenance and operating costs are expected to be $12,000. Using a 12% interest rate, which machine should be chosen? Use Present Worth Analysis. (Answer: select the Blizzard as it is the least expensive with a PW of -139,636.80 versus the other with PW of -155,728.)