Question: 1 a manufacturing company is considering the installation of a...
1. A manufacturing company is considering the installation of a standby power supply system. A used generator can be installed for £ 18,000; while a completely new generator can be installed for £ 24,000. Annual operating costs are estimated to be £ 8200 for the used generator and £7000 for the new one. Both generators are anticipated to survive for 20 years with zero salvage value at that time. Yearly maintenance costs of the used and new generators are £ 1500 and £ 500 respectively. The minimum acceptable rate of return is 15%.
- Construct the netcash flow of the two generators.
- Find the internal rate of return of the net cash flow and recommend the best economical choice.
- What should be the initial cost of the used generator to make the two alternatives even at an interest rate of 12%?