Question
You are evaluating the purchase and installation of a new machine for your company. The purchase...
You are evaluating the purchase and installation of a new machine for your company. The purchase cost is $20,000 and its installation cost is $5,000. Its maintenance cost is estimated to be $2,000 per year starting EOY 1, increasing by 5% per year for 14 additional years. You estimate the additional revenue after installation to be $10,000 per year starting EOY 1 and continuing for 4 additional years. You estimate revenue to increase to $15,000 starting EOY 6 and increasing by $500 each year for the next 9 years. At the end of 15 years you estimate the machine will be sold for $5,000. Your company’s MARR is 15%.
- What is the present worth of all cash flows evaluated at MARR?
- Based on your PW would you recommend the purchase and installation of the machine?
- Why or why not? Be very specific and
state the basis for your decision to recommend or
reject?
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