Answer to Question #116032 in Microeconomics for billy

Question #116032
Ideal Co. Ltd is a local company which produces medical mask. Due to the outbreak of Coronavirus in Hong Kong, the CEO considers buying a new set of machines to enlarge the production scale. TWO models of the same budget ($200,000) are available and the information is shown below:
Model A Model B
Resell value after ONE year $115,000 $135,000

Annual repair and maintenance fee $25,000 $20,000
Annual electricity consumption$30,000 $75,000
Which set of machines will you suggest the Company to purchase? Explain briefly with relevant data and working.
Expert's answer

If we don't count the discount rate, then the total cost of model A is:

TCa = 200,000 - 115,000 + 25,000 + 30,000 = 140,000.

The total cost of model A is:

TCb = 200,000 - 135,000 + 20,000 + 75,000 = 160,000.

So, model A is better.

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