Response to the following problem:
Allen International Inc. manufactures chemicals. It needs to acquire a new piece of equipment to work on production for a large order that Allen has received. The order is for a period of three years, and at the end of that time, the machine would be sold. Allen has received two supplier quotations, both of which will provide the required service.
Quotation I has a purchase cost of $180,000 and an estimated salvage value of $50,000 at the end of three years. Its cost for operation and maintenance is estimated at $28,000 per year.
Quotation II has a purchase cost of $200,000 and an estimated salvage value of $60,000 at the end of three years. Its cost for operation and maintenance is estimated at $17,000 per year.
The machines are entitled to the 3-year capital allowance claims under Singapore tax regulation where the corporate tax rate is 17%. Allen's after-tax MARR is 12%. Perform after-tax cash flow analysis to determine which of these machines should be acquired.
You should state the study period you are using, show all numbers necessary to support your conclusions.