Question

A wholesale distributor of automobile spare parts plans to modify the material handling system of its existing facility. The facility will require an initial redesign cost of $370,000 and a monthly operating and maintenance cost of $30,000. It will have a $66,500 salvage value of the system after 7 years. if the company's minimum attractive rate of return is 6% per year, (compounded monthly)

-Draw the cash-flow diagram in monthly bases for the wholesale distributor.

Answer 1

t = 7*12 = 84 months

i = 6% / 12 = 0.5% per month

initial cost = 370000

Cost per month = 30000

Salvage = 66500