Question

A certain machine has the estimates shown below: Machine First Cost ($) -20,000 Annual operating cost...

A certain machine has the estimates shown below:

Machine
First Cost ($) -20,000
Annual operating cost ($/ year) -10,000
Salvage value ($) 4,000
Life (years) 10


At an interest rate of 10% per year, the annual worth of this machine is equal to:

Question 10 options:

-$13,004

-$13,254

-$12,658

-$15,270

Business   Accounting   
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Homework Answers

Answer #1

Present value of cash outflows

First value

$20,000

Annual costs (6.1446*$10,000)
Annuity factor for 10 years @ 10% =6.1446

$61,446

Less: Present value of salvage value ($4,000*0.3855)
P.V factor for 10 years @10% = 0.3855

($1,542)

Present value of cash outflows (A)

$79,904

Annuity factor for 10 years @ 10% (B)

6.1446

Annual worth of machine (C=A/B)

$13,003.94

Ans

annual worth of this machine is equal to = $13,004

Option (A) $ 13,004 is correct
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