Question

A manufacturing company of a mini-doughnut machine maker quoted a price for a custom-designed doughnut machine to be delivered in 2017. Once purchased, the customer intends to place the machine in service in January 2018 and will use it for 4 years. The expected annual operating net cash flow is estimated to be $144,000. The expected salvage value of the equipment at the end of 4 years is 12.9% of the initial purchase price. To expect a 14% required rate of return on the investment, what is the maximum amount that should be spent on purchasing the doughnut machine? You do not need to consider taxes or depreciation for this problem."

Answer 1