CaptainCronx
New member
- Joined
- May 3, 2014
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A manufacturing company needs to install an enterprise resource planning (ERP) system for production planning and control. There are two systems they can choose from and both systems can be used for the indefinite future.
System I has an installation cost of $200,000 now and an additional cost of $60,000 after 10 years. The annual maintenance cost is $6,000 for the first 5 years and $8,000 thereafter. In addition there is expected to be a recurring
major upgrade cost of $13,000 every 13 years. System II has an annual maintenance cost $25,000 for the first 5 years and $17,000 thereafter. System II does not require an installation or upgrade cost. Help the company select
the more economic system assuming i=5% per year.
Okay I understand that Capitalized worth is the annual worth over the interest rate, but how do I apply the increase in annual cost? please someone explain.
System I has an installation cost of $200,000 now and an additional cost of $60,000 after 10 years. The annual maintenance cost is $6,000 for the first 5 years and $8,000 thereafter. In addition there is expected to be a recurring
major upgrade cost of $13,000 every 13 years. System II has an annual maintenance cost $25,000 for the first 5 years and $17,000 thereafter. System II does not require an installation or upgrade cost. Help the company select
the more economic system assuming i=5% per year.
Okay I understand that Capitalized worth is the annual worth over the interest rate, but how do I apply the increase in annual cost? please someone explain.
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